Thursday, February 2

Experts Disagree on Corporate Earnings Growth

This week Q4 2022 earnings season officially kicks off, which is expected to be positive, although without much happiness.

Specifically, the consensus of analysts believes that earnings per share (EPS or EPS, according to its acronym in English) will grow 19 percent year-on-year in the United States and 12 percent year-on-year in Europe; compared to the 40 percent growth registered in the third quarter of 2021.

Although JP Morgan strategists believe that the market is being too conservative and, contrary to what the consensus thinks, they assert that companies will once again beat forecasts due to the “momentum” of strong activity, the rise in PMIs and the rebound in industrial production, according to a recent report by the firm.

Europe will stand out in the results season

Especially the team led by Mislav Matejka is positive in the case of Europe.

In this way, he believes that the resilience of the margins will allow us to see increases in profits of the size of 20 percent year-on-year in the case of the euro zone (compared to an increase of 7 percent anticipated by the consensus), due to the healthy GDP growth, which JP Morgan puts at 4.6 percent for this region.

By stock type, JP Morgan believes cyclicals will do better than defensives this earnings season.

Also from IG Markets they think that the results season is going to be good.

The sectors that will present the best results

This is what its analyst Sergio Ávila has stated: “We expect a positive season, especially in sectors such as oil, ‘Real State’ (real estate), materials, discretionary consumption or industrials”, he said.

Bankinter analysts believe something similar: “The guidance for 2022 should be constructive and this will give some perspective back to the stock markets. With all this, we expect a more serene tone in the stock markets, with an upward bias if business results continue as expected”.

Although, that does not mean that all companies will announce good results, which will be decisive for investors to evaluate their investments.

In this sense, Geir Lode, director of global equities of the international business of Federated Hermes, warns the following: “LInvestors are going to show zero tolerance for failures in results and, in particular, for downgrades in forecasts”.

This was already seen on Friday, when some large investment banks began the results season on Wall Street, with a rather mixed balance.

JP Morgan results disappoint

To get started, JP Morgan beat expectations with revenue of $30.349 million (one percent more than expected) but future prospects did not convince the market, which caused a correction that Bankinter considers an opportunity to enter the value at better prices.

“The prospects for 2022 are good -credit demand, rising interest rates, contained delinquencies and high profitability-. We understand the current correction as an investment opportunity at more attractive prices”, say its experts in a report.

For its part, Wells Fargo also positively surprised, with a RoTE profitability that exceeds pre-Covid-19 levels; but Cirigroup left a bad taste in the mouth, with worse-than-expected numbers at the bottom of the income statement due to extraordinary items.

“In this environment, Citi is likely to pursue an asset sale strategy (Korea, Mexico…) and additional cost adjustments. We will learn the details of the strategic plan at Investor Day (in March 2022)”, Bankinter experts explain in a note.