We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Citigroup, American Express, IBM and AIG are part of Zacks Earnings Preview
Read MoreHide Full Article
For Immediate Release
Chicago, IL – January 22, 2018 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Citigroup (C - Free Report) , American Express (AXP - Free Report) , IBM (IBM - Free Report) and AIG (AIG - Free Report) .
Q4 Earnings Season: Strong Growth, but Weak Quality
It’s hard to consider the worthiness of a stock without sizing up the company’s profitability potential. Calling earnings as the mother’s milk of stocks is probably not an exaggeration. The bottom line is that earnings are very important to keep an eye on for anyone interested in stocks.
Everyone has an intuition for ‘earnings’ and see it as the leftover of sales after all the business expenses have been accounted for. This otherwise simple and intuitive principle gets complicated as a result of accounting rules that vary from country to country. In the U.S., the accounting rules mandating what can be called earnings (officially it’s called ‘net income’) in the company’s audited financial statements available to shareholders are called GAAP rules (GAAP stands for generally accepted accounting principles).
I am oversimplifying here, but GAAP rules don’t differentiate between business expenses that are incurred regularly and those that take place every now and then. The investing community likes to make that distinction; they see regular and recurring expenses as the only ones that should matter to those interested in evaluating the stock; the non-recurring ones need not be taken into account. As such, the investing community makes adjustments to reported GAAP earnings, by taking out non-recurring expenses and gains. All the earnings discussion you see in the marketplace is primarily about such ‘adjusted’ earnings.
And as you can imagine, such ‘adjusted’ earnings are (almost) always higher than the official GAAP earnings, but the ‘gap’ (no pun intended) between the two is typically not that big. That’s not the case in the ongoing Q4 earnings season, which ramps up in a big way this week with more than 250 companies reporting results, including 81 S&P 500 members.
For the 53 S&P 500 members that have reported Q4 results already, as of Friday, January 19th, the magnitude of gap between adjusted earnings and GAAP earnings is unlike anything we have seen over the last few years. On average, adjusted earnings were +6% higher than GAAP earnings over the preceding 16 quarters for these 53 S&P 500.
But as you can see in the chart below, the gap is extremely wide for 2017Q4 and likely to remain in record territory even as the reporting cycle moves beyond the Finance sector where the issue was very pronounced.
A lot goes into ‘earnings quality.’ But as a general rule, it is reasonable to be wary of a big variance between adjusted and GAAP earnings. Going by this simple rule, you have to question the ‘quality’ of Q4 earnings reports, irrespective of the growth pace and proportion of positive surprises on the ‘adjusted’ earnings front.
A few specific examples should help make this point. Citigroup earned $3.38 billion on an adjusted basis, but lost $18.8 billion on GAAP basis. American Express earned $1.39 billion on an adjusted basis, but lost roughly $1.2 billion on GAAP basis. IBM earned $4.8 billion on an adjusted basis, but lost $1.1 billion on GAAP basis. The list goes on and on.
As pointed out at the top, it makes analytical sense to exclude these one-time charges from the data so that investors have a clear sense of underlying business trends and not get distracted by one-off gains or losses. Such charges were commonplace during the global financial crisis of 2008.
I will mention detail from that period – AIG lost $52.1 billion for full-year 2008 on an adjusted basis and lost $103 billion that year on GAAP basis. It’s hard to envision any company improving upon that type of ‘performance’ in this earnings season.
The rest of the earnings discussion in this note will be using ‘adjusted’ earnings. But before I give you the Q4 earnings season scorecard on an adjusted earnings basis, let me give you the GAAP scorecard first.
On A GAAP basis, total earnings for the 53 S&P 500 members that have reported results already are down -57.8% from the same period last year on +7.5% higher revenues.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Citigroup, American Express, IBM and AIG are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – January 22, 2018 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Citigroup (C - Free Report) , American Express (AXP - Free Report) , IBM (IBM - Free Report) and AIG (AIG - Free Report) .
To see more earnings analysis, visit http://at.zacks.com/?id=3207.
Q4 Earnings Season: Strong Growth, but Weak Quality
It’s hard to consider the worthiness of a stock without sizing up the company’s profitability potential. Calling earnings as the mother’s milk of stocks is probably not an exaggeration. The bottom line is that earnings are very important to keep an eye on for anyone interested in stocks.
Everyone has an intuition for ‘earnings’ and see it as the leftover of sales after all the business expenses have been accounted for. This otherwise simple and intuitive principle gets complicated as a result of accounting rules that vary from country to country. In the U.S., the accounting rules mandating what can be called earnings (officially it’s called ‘net income’) in the company’s audited financial statements available to shareholders are called GAAP rules (GAAP stands for generally accepted accounting principles).
I am oversimplifying here, but GAAP rules don’t differentiate between business expenses that are incurred regularly and those that take place every now and then. The investing community likes to make that distinction; they see regular and recurring expenses as the only ones that should matter to those interested in evaluating the stock; the non-recurring ones need not be taken into account. As such, the investing community makes adjustments to reported GAAP earnings, by taking out non-recurring expenses and gains. All the earnings discussion you see in the marketplace is primarily about such ‘adjusted’ earnings.
And as you can imagine, such ‘adjusted’ earnings are (almost) always higher than the official GAAP earnings, but the ‘gap’ (no pun intended) between the two is typically not that big. That’s not the case in the ongoing Q4 earnings season, which ramps up in a big way this week with more than 250 companies reporting results, including 81 S&P 500 members.
For the 53 S&P 500 members that have reported Q4 results already, as of Friday, January 19th, the magnitude of gap between adjusted earnings and GAAP earnings is unlike anything we have seen over the last few years. On average, adjusted earnings were +6% higher than GAAP earnings over the preceding 16 quarters for these 53 S&P 500.
But as you can see in the chart below, the gap is extremely wide for 2017Q4 and likely to remain in record territory even as the reporting cycle moves beyond the Finance sector where the issue was very pronounced.
A lot goes into ‘earnings quality.’ But as a general rule, it is reasonable to be wary of a big variance between adjusted and GAAP earnings. Going by this simple rule, you have to question the ‘quality’ of Q4 earnings reports, irrespective of the growth pace and proportion of positive surprises on the ‘adjusted’ earnings front.
A few specific examples should help make this point. Citigroup earned $3.38 billion on an adjusted basis, but lost $18.8 billion on GAAP basis. American Express earned $1.39 billion on an adjusted basis, but lost roughly $1.2 billion on GAAP basis. IBM earned $4.8 billion on an adjusted basis, but lost $1.1 billion on GAAP basis. The list goes on and on.
As pointed out at the top, it makes analytical sense to exclude these one-time charges from the data so that investors have a clear sense of underlying business trends and not get distracted by one-off gains or losses. Such charges were commonplace during the global financial crisis of 2008.
I will mention detail from that period – AIG lost $52.1 billion for full-year 2008 on an adjusted basis and lost $103 billion that year on GAAP basis. It’s hard to envision any company improving upon that type of ‘performance’ in this earnings season.
The rest of the earnings discussion in this note will be using ‘adjusted’ earnings. But before I give you the Q4 earnings season scorecard on an adjusted earnings basis, let me give you the GAAP scorecard first.
On A GAAP basis, total earnings for the 53 S&P 500 members that have reported results already are down -57.8% from the same period last year on +7.5% higher revenues.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
http://www.zacks.com
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.