Company Profit Growth Could Be A Lot Higher Than Analysts Are Expecting This Earnings Season

Company Profit Growth Could Be A Lot Higher Than Analysts Are Expecting This Earnings Season
Carl Hazeley

over 1 year ago1 min

Mentioned in story

US companies are starting to update investors on their second-quarter results, giving everyone a much-needed insight into their bottom lines. And if history’s anything to go by, analysts are going into this earnings season underestimating just how well those companies have performed.

You can see this dynamic play out in the chart above, which shows that S&P 500 companies have traditionally delivered much higher profits on average (the blue bars) than analysts have forecasted (gray). In fact, companies’ actual profits have come in almost 9% higher than expected over the last five years, and almost 7% over the last ten. That’s driven profit growth that was 8.1 and 5.5 percentage points higher respectively than analysts have forecasted.

That brings us to this earnings season, where analysts are forecasting company profits to be 4.1% higher on average than the same time last year. If you apply the average upticks we’ve seen over the last five and ten years, US companies could actually be set to report profit growth of between 9.6% and 12.2% for the second quarter. And that discrepancy between expectations and reality could open up a neat way to profit – one we’ve explored in more detail here.

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