Picking out the one stock most likely to beat the Street’s estimates for next quarter’s earnings is something only we can do. Without our proprietary footnotes data, all the other analysts are flying blind. They are forced to estimate earnings without the critical gains and charges that companies hide in their footnotes so they can manipulate their earnings.
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Every quarter, we comb through thousands of footnotes to find the one stock we think is most likely to beat the Street. We think this stock will beat because their Street Earnings are artificially depressed by non-operating expenses that we remove when we calculate our proven-superior Core Earnings.
You probably won’t be surprised to learn that Street Earnings overstate profits for the majority of S&P 500 companies. There are far fewer S&P 500 companies whose Street Earnings are lower than their Core Earnings.
Today, we’re featuring the first of our two earnings season preview reports. This report shows:
- the frequency and magnitude of understated Street Earnings in the S&P 500 and
- the S&P 500 company most likely to beat 3Q24 earnings.
Our Robo-Analyst allows us to compare Core Earnings across the entire market.
Street EPS Are Lower Than Core EPS for 121 S&P 500 Companies
For 121 companies in the S&P 500, or 24%, Street Earnings are lower than Core Earnings in the trailing-twelve-months (TTM) ended 2Q24. In the TTM ended 1Q24, Street Earnings were understated for 122 companies.
The percentage of the S&P 500 where Street Earnings understate Core Earnings by more than 10% equals 9% (43 companies) in 2Q24, which is up from 41 companies in the TTM ended 1Q24.
Those 43 companies make up 8% of the market cap of the S&P 500 as of 9/23/24, which is up from 6% of the market cap in 1Q24, measured with TTM data in each quarter. See Figure 1.
Figure 1: Understated Street Earnings by >10% as % of Market Cap: 2012 through 9/23/24
Sources: New Constructs, LLC and company filings.
The 121 companies with understated (by any amount) Street Earnings represent 33% of the market cap of the S&P 500 as of 9/23/24, which is up from 29% in the TTM ended 1Q24. See Figure 2.
Figure 2: Understated Street Earnings as % of Market Cap: 2012 through 9/23/24
Sources: New Constructs, LLC and company filings.
Note that this analysis is based on our team analyzing the financial statements and footnotes for ~3,000 10-Ks and 10-Qs filed with the SEC after earnings season. We estimate that the cost of this work for most firms would be over $2 million each quarter. To say the least, there is tremendous value in our rigorous analysis of these filings across so many companies so that our clients can discern the best and worst stocks with unrivaled diligence.
….there’s much more detail in the full report, including the one S&P 500 company we think is most likely to beat Street Estimates for 3Q24 earnings.