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3Q21 Earnings: Where the Street is Too High & Who Should Miss

3Q21 Earnings: Where the Street is Too High & Who Should Miss

Posted October 19, 2021 at 10:25 am
Kyle Guske
New Constructs

Wall Street analysts are too bullish on third quarter earnings expectations for 75% of S&P 500 companies.

In theory, Wall Street analysts adjust EPS for unusual gains and losses that distort reported EPS. In reality, they do not. Street EPS estimates are materially misleading more often than investors realize[1].

This report shows:

  • five S&P 500 companies with overstated Street estimates likely to miss 3Q21 earnings
  • why Street Earnings, GAAP Earnings, and consensus estimates are flawed
  • how our Core Earnings[2] and Earnings Distortion factor generate novel alpha

Get our report on the S&P 500 companies more likely to beat 3Q21 Street EPS estimates here.

Street Overstates EPS for 375 S&P 500 Companies

Per Figure 1, Street EPS overstate Core EPS for 75% of S&P 500 companies for the trailing-twelve-months (TTM) ended calendar 2Q21[3]. For 43% of S&P 500 companies, Street EPS are overstated by more than 10% (examples are below).

Figure 1: Street Earnings Are Overstated for a Large Amount of S&P 500 Companies

Street Earnings Are Overstated for a Large Amount of S&P 500 Companies

Sources:  New Constructs, LLC and company filings.

When the Street EPS overstates Core EPS, it does so by an average of 24% per company, see Figure 2.

Figure 2: Street Earnings Overstate by 24% on Average

Street Earnings Overstate by 24% on Average

Sources:  New Constructs, LLC and company filings.

Click here to read the full article

This article originally published on October 8, 2021.

Disclosure: David Trainer, Kyle Guske II, Alex Sword, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] The same is true for other well-known “adjusted” measures of earnings: S&P’s “Operating Earnings” Remain Overstated in 2Q21.

[2]The Journal of Financial Economics proves that only Core Earnings enable investors to overcome the flaws in legacy fundamental data.

[3] The most recent Core Earnings and Street Earnings values are based on the latest audited financial data from calendar 2Q21 10-Qs.

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.

The information and opinions presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or solicitation of an offer to buy or sell securities or other financial instruments. New Constructs has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor and nothing in this report constitutes investment, legal, accounting or tax advice. This report includes general information that does not take into account your individual circumstance, financial situation or needs, nor does it represent a personal recommendation to you. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about any such investments or investment services.

Information and opinions presented in this report have been obtained or derived from sources believed by New Constructs to be reliable, but New Constructs makes no representation as to their accuracy, authority, usefulness, reliability, timeliness or completeness. New Constructs accepts no liability for loss arising from the use of the information presented in this report, and New Constructs makes no warranty as to results that may be obtained from the information presented in this report. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information and opinions contained in this report reflect a judgment at its original date of publication by New Constructs and are subject to change without notice. New Constructs may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and New Constructs is under no obligation to insure that such other reports are brought to the attention of any recipient of this report.

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