Wednesday, August 9, 2017

Earnings: Stocks of Companies That 'Beat' are Getting Beaten (NVDA)

Ahead of NVIDIA's Aug. 10 earnings report something to be aware (beware?) of.
There is an almost universal consensus the chipmaker will beat top and bottom this quarter.
From ZeroHedge:

For The First Time Since The Tech Bubble The Market No Longer Rewards "Beating" Companies
With Q2 earnings season rapidly approaching its end, Bank of America points out a curious observation: stocks that beat earnings expectations are not getting "rewarded" with higher prices. This is the first time this has been observed in 17 years - the last time the market seemed oblivious to corporate upside was in 2Q 2000... just before the Tech Bubble burst. As BofA warns, "this could be a warning sign that equity market expectations and positioning more than reflect the good results."

Adding to peak valuation concerns, BofA's quant strategist Savita Subramanian also expects full-year EPS growth to decelerate from 8% in 2017 to 5% in 2018, and redundantly adds that "the stock market may not react well to decelerating earnings." That's one way of putting it.

Some more details on this notable "market peak" phenomenon:
Companies which beat on EPS and sales have performed in-line with the market the subsequent one and five days - the first time we've seen no reward for beats since 2000.
Companies which missed on both metrics have underperformed by 3ppt the subsequent one and five days - greater than the historical average underperformance of 2ppt.

Punishment for misses has been greatest in Tech - which is extremely crowded vs. history by active funds. The reward for beats has generally been muted (or nonexistent) across all 11 sectors, but is so far largest in Consumer Discretionary on a one-day basis (1.1ppt) and Real Estate on a five-day basis (1.5ppt). Performance spreads have been muted based on guidance as well (Table 4)....MORE

Here's an example that dropped out of a feedreader yesterday.
From Geekwire: 
Zillow Group reported a record $266.9 million in revenue for the second quarter of this year, a 28 percent increase over the same period in 2016.
The Seattle real estate data company beat Wall Street expectations of $261.9 million in revenue, and slightly beat earnings estimates with a non-GAAP EPS of $0.04.
Shares were down 5 percent in after-hours trading....
Meanwhile, we'll be preparing the squawkbox for tomorrow with one of our quarterly rituals from First Solar's $20 to $317 run: