Earnings Distortion Scorecard: Week Of 7/20/20-7/24/20
Long/Short Equity, Value, Deep Value, Long-Term Horizon
Seeking Alpha Analyst Since 2010
Summary
- Earnings Distortion Scores empower investors to make smarter investments with superior data as well as defend against management efforts to obfuscate financial performance.
- For the week of 7/20/20-7/24/20, we focus on the Earnings Distortion Scores for 89 companies.
- Earnings Distortion Scores on all the S&P 500 companies, plus those with market caps greater than $10 billion, that are expected to report the week of July 20, 2020.
For the week of 7/20/20-7/24/20, we focus on the Earnings Distortion Scores for 89 companies.
Weekly Earnings Distortion Insights
Figure 1 contains the 15 largest (by market cap) companies that earn a “Strong Beat” or “Strong Miss” Earnings Distortion Score and are expected to report the week of July 20, 2020.
Figure 1: Earnings Distortion Scorecard Highlights: Week of 7/20/20-7/24/20
The appendix shows the Earnings Distortion Scores for all the S&P 500 companies, plus those with market caps greater than $10 billion, that are expected to report the week of July 20, 2020.
Details: Cousins Properties (NYSE:CUZ): Earnings Distortion Score: Strong Miss
Over the trailing-twelve months , Cousins Properties has $154 million in net earnings distortion that cause earnings to be overstated by $1.10/share. Notable unusual income hidden and reported in Cousin Properties’ filings include:
- $93 million gain on consolidated properties – 2019 10-K page 32
- $91 million gain on investment property transactions reported on the income statement – 1Q20 10-Q
- $46 million gain on sales of investments in unconsolidated joint ventures reported on the income statement – 1Q20 10-Q
This unusual income was partially offset by $53 million in transaction costs reported on the firm’s 2019 income statement.
In total, we identified $1.10/share (53% of GAAP EPS) in net unusual income that cause Cousin Properties’ TTM GAAP results to be overstated. After removing this earnings distortion, Cousin Properties’ TTM core earnings of $0.97/share are less than GAAP EPS of $2.07, per Figure 2.
With overstated earnings, Cousins Properties gets our “Strong Miss” Earnings Distortion Score and is likely to miss consensus expectations.
Figure 2: Cousins Properties Core Earnings Vs. GAAP: 2016 – TTM
Figure 1 shows that Cousin Properties is one of nine companies that earn our “Strong Miss” score for this week.
How to Leverage Earnings Distortion Data
“Trading strategies that exploit {adjustments provided by New Constructs} produce abnormal returns of 8% per year.” – Page 1 in Core Earnings: New Data & Evidence
In Section 5.2, professors from HBS & MIT Sloan present a long/short strategy that holds the stocks with the most understated EPS and shorts the stocks with the most overstated earnings.
This strategy produced abnormal returns of 8% a year.
This article originally published on July 13, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, sector, style, or theme.
Appendix: All Major Companies Expected to Report July 20 – July 24
Figure 3 shows all the S&P 500 companies, plus those with market caps greater than $10 billion, that are expected to report the week of July 20, 2020.
Figure 3: Earnings Distortion Scorecard: Week of 7/20/20-7/24/20
Figure 3: Earnings Distortion Scorecard: Week of 7/20/20-7/24/20 (continued)
Figure 3: Earnings Distortion Scorecard: Week of 7/20/20-7/24/20 (continued)
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Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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