Picking out the one stock most likely to miss the Street’s estimates for next quarter’s earnings is something one can only do with a superior earnings measure of the entire market. Only we provide such a measure. Without our proprietary footnotes data, other analysts are flying blind. They are forced to estimate earnings without the full picture of a company’s financials, including the material information hidden in footnotes.
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Every quarter, we comb through thousands of footnotes to find the one stock we think is most likely to miss the Street. We think this stock will miss because Street Earnings are artificially increased by non-operating income 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. In this report, the second of our two earnings season preview reports, we show:
- the frequency and magnitude of overstated Street Earnings in the S&P 500 and
- the S&P 500 company most likely to miss 3Q24 earnings.
Our Robo-Analyst technology allows us to compare Core Earnings to Street Earnings across the entire market.
Street EPS Are Higher Than Core EPS for 369 S&P 500 Companies
For 369 companies in the S&P 500, or 74%, Street Earnings are higher than Core Earnings in the trailing twelve months (TTM) ended 2Q24. In the TTM ended 1Q24, Street Earnings were overstated for 373 companies.
The more interesting trend, however, is in the percentage of the S&P 500 where Street Earnings overstate Core Earnings by more than 10%. That number equals 42% (210 companies), which is slightly lower the 212 companies in the TTM ended 1Q24.
Those 210 companies make up 26.9% of the market cap of the S&P 500 as of 9/23/24, which is down from 27.4% of the market cap in 1Q24, measured with TTM data in each quarter. See Figure 1.
Figure 1: Overstated Street Earnings by >10% as % of Market Cap: 2012 through 9/23/24
Sources: New Constructs, LLC and company filings.
The 369 companies with overstated (by any amount) Street Earnings make up 66% of the market cap of the S&P 500 as of 9/23/24, which is down from 71% in 1Q24, measured with TTM data in each quarter.
Figure 2: Overstated 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 miss Street Estimates for 3Q24 earnings.