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…

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…

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…

M&A in healthcare – Out with the old, in with the new?

Harlan Sonderling, CFA, Senior Healthcare Analyst | March 31, 2014

…and claims. The “old” healthcare M&A In the “old days,” pharmaceutical Company A would announce its acquisition of Company B for stock, cash and stock, or cash only. Company A would forecast that the deal is “dilutive to earnings in year one, neutral in year two, and accretive in year three.” Investors recognized that the expected benefits of the acquisition accrued more to the selling shareholders than to the acquirer’s. More often than not…

Should investors care about valuation?

Rich Rosen, Portfolio Manager | November 25, 2013

Is valuation an effective tool for deciding on whether to invest in a stock? We look at other drivers of a stock’s worth Earnings and earnings growth could be more useful in evaluating a stock’s worth Many of the market experts paraded around on the business programs, when asked about their forecast for stocks, often begin with a comment about valuation. But really, how effective is valuation as a gauge for determining whether it is a good tim…