While Street Earnings[1] overstate profits for the majority of S&P 500 companies, as shown in Street Earnings Overstated for 67% of S&P 500 Companies in 1Q22, there are many S&P 500 companies whose Street Earnings understate their true Core Earnings.
This report shows:
- the frequency and magnitude of understated Street Earnings in the S&P 500
- five S&P 500 companies with understated Street estimates likely to beat 2Q22 earnings
Get our report on the S&P 500 companies more likely to miss 2Q22 Street EPS estimates here.
Street Understates EPS for 152 S&P 500 Companies
152 companies with understated Street Earnings represent 27% of the market cap of the S&P 500 as of 5/16/22, which is up from 20% at the close of 2021, measured on a rolling four quarter basis.
The increase from the prior TTM period is driven largely by Microsoft (MSFT) and NVIDIA Corporation’s (NVDA) Street Earnings swinging from overstated through 2021 to understated through 1Q22. Combined, these two firms make up 7% of the S&P 500 market cap through 5/16/22. For comparison, in 2021 there were 155 companies that had understated Street Earnings for the year.
Figure 1: Understated Street Earnings as % of Market Cap: 2012 through 5/16/22
Sources: New Constructs, LLC and company filings.
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This article originally published on July 5, 2022.
Disclosure: David Trainer, Kyle Guske II, Matt Shuler, and Brian Pellegrini receive no compensation to write about any specific stock, style, or theme.
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[1] Street Earnings refer to Zacks Earnings, which are adjusted to remove non-recurring items using standardized sell-side assumptions.
[2] The Journal of Financial Economics features the superiority of our Core Earnings in Core Earnings: New Data & Evidence.
[3] Average understated % is calculated as Street Distortion, which is the difference between Street Earnings and Core Earnings.
Click here to download a PDF of this report.
Disclosure: New Constructs
David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.
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