Perspectives Blog

Beware of earnings gimmicks

Jason Wang, Senior Quant Analyst | March 10, 2014

The combination of slow revenue growth, high existing margins and increased multiples creates incentives for more aggressive accounting. Stocks with the lowest accounting accruals outperformed their benchmark by 2.7% per year between 1993 and 2013. History suggests that paying close attention to changes in earnings quality can be of significant value for investors. Since the global financial crisis, economic recovery worldwide has been slow. O…

Triangulating on 2014 corporate earnings

Tom West, Director of Equity Research | January 27, 2014

Estimating corporate earnings with bottom-up forecasts, top down forecasts and empirical forecasts will result in a range of outcomes While we believe bottom-up forecasts provide the best estimate, the other two methods can be useful in testing the result We look at top down build-up earnings growth for the S&P 500 and growth expectations by sector to arrive at an EPS growth estimate for 2014 I generally think the best way to build up an e…

The cons of pro forma earnings

Paul DiGiacomo, Senior Analyst | January 7, 2014

Analysts assimilate data from many sources to evaluate a company’s underlying earnings potential. Over the last 20 years, company managements have adjusted generally accepted accounting principles (GAAP) results to aid analysis. As pro forma earnings proliferate, analysts must carefully evaluate treatment of reported results. As the fourth quarter comes to a close, analysts are adjusting their earnings estimates for the final months of the yea…

Second quarter U.S. corporate earnings wrap-up

Tom West, Director of Equity Research | August 18, 2014

Non-cyclical sectors slightly out performed cyclical sectors during the quarter. In technology, the U.S. is improving, Europe is still not strong and developing markets lag. The healthcare sector improved, but it is still a question mark for the second half of the year. As the economic recovery matures, we have seen a fairly consistent pattern in quarterly earnings: estimates come down during the course of the quarter, and then beat the “lower…

First quarter earnings wrap up – A bit light

Tom West, Director of Equity Research | May 19, 2014

First quarter earnings results fell a bit short of the annual pace that we proposed at the beginning of the year. Corporate revenues did not track forecasts due to challenging weather, price increases remaining at the low end and subdued cyclical activity and investment spending. We should probably adjust full year estimates down a bit, but not by much. The first quarter reporting season has wound down for those companies with “normal” reporti…

Corporate governance – The next catalyst for Japanese equities

Daisuke Nomoto, Senior Portfolio Manager | August 4, 2014

Overhauling corporate governance to harness the power of private enterprise is critical to Japan’s growth strategy. Better engagement between corporate management and shareholders should ultimately lead to higher returns for holders of Japanese equities. We are focused on companies that can generate sustainable free cash flow, earn returns well above their cost of capital and regularly conduct shareholder friendly capital management. A critica…

Second quarter earnings preview

Tom West, Director of Equity Research | June 30, 2014

sectors show some signs of increasing activity. For the less cyclical sectors and consumer discretionary industries, we want to see if pricing holds up amid flattish demand and a tepid wage growth. In about a week, corporate earnings reports will start to come in. As they do, we will try to match the torrent of operating results and management commentary with the prices of the stocks and that of the broader market. So far this year, the market h…