Perspectives Blog

Beware of earnings gimmicks

Jason Wang, Senior Quant Analyst | March 10, 2014

…e. 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 reserves, classifying one-time gains as earnings from continuing operations and hiding debt…

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…

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…

Second quarter U.S. corporate earnings wrap-up

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

…ht not sound all that great, but it was also true that the strength seemed to line up with the bigger pockets of earnings, making the aggregate earnings number come out a bit better. Healthcare came in pretty strong, and consumer staples, while not showing much revenue growth, came in with good margin performance. Industrials were a source of disappointment, while poor old tech showed some life. In the technology sector, second quarter spending i…

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…

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

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

…ating income. Company A did not refer to its return on invested capital forecast or financial metrics other than earnings accretion, and there was little expectation that it would disclose earnings dilution and accretion as the years passed. The consolidated tax rate was assumed to be in proportion to the earnings of each company and dependent almost entirely on the geographic mix of operating income. The “new” healthcare M&A Fast forward to…

Second quarter earnings preview

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

We believe YTD valuation improvement in stocks is more likely the result of basic supply and demand than an upward revision off corporate prospects. Going into corporate reporting season, we’re focused on whether the cyclical 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, corpor…