Perspectives Blog

Beware of earnings gimmicks

Jason Wang, Senior Quant Analyst | March 10, 2014

…dopted a “show me” attitude. The consequence for a disappointing report could be severe. To appease Wall Street, corporate managements are pressured to do everything in their power to deliver strong earnings numbers. There are a wide range of possible accounting gimmicks that could be deployed. Some examples are premature recognition of revenue, aggressive capitalization of expenses, exaggerating current expenses/losses to create cookie jar reser…

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

…y trends, analysis of financial statements, and assessment of management help to estimate a company’s underlying earnings potential. Often, we will include the effect of future corporate actions, such as an acquisition, or exclude one-time items, such as the costs associated with integrating that acquisition. Over the last 20 years, the use of “pro forma” earnings, where managements arbitrarily omit certain items from results, has proliferated, o…

Second quarter U.S. corporate earnings wrap-up

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

…econd 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 “lowered bar” during corporate reporting “season.” This is a normal function of both the “muddle through” economic environment and the Wall Street analyst/corporate investor relations machinery. But it is worth noting that in this quarter, the bar was low…

Are financial markets priced for secular stagnation?

Columbia Management, Investment Team | December 15, 2014

…. high yield bond market yield to worst The first perspective can be seen in Exhibit 4, which shows the forward earnings yield of the S&P500 for different calendar year consensus earnings expectations (the inverse of the forward PE), and compares these to the overall U.S. high yield bond market yield (black line). We are certainly not comparing apples with apples. High yield corporate bonds tend to be issued by companies with either signific…

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…