Time: 2024-07-17
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While Street Earnings overstate profits for the majority of S&P 500 companies there are many S&P 500 companies whose Street Earnings are lower than their Core Core Earnings . Street Earnings refer to Zacks Earnings , which are adjusted to remove non - recurring items using standardized sell - side assumptions.
For 122 companies in the S&P 500 , or 24 % , Street Earnings are lower than Core Earnings in the trailing - twelve - months ( TTM ) ended 1Q24 . In the TTM ended 4Q23 , Street Earnings were understated for 125 companies.
The percentage of the S&P 500 where Street Earnings understate Core Earnings by more than 10 % equals 8 % ( 41 companies ) in 1Q24 , which is down from 43 companies in the TTM ended 4Q23.
Those 41 companies make up 6 % of the market cap of the S&P 500 as of 7/8/24 , same as what I saw for 4Q23 , measured with TTM data in each quarter . See Figure 1.
The 122 companies with understated ( by any amount ) Street Earnings represent 30.2 % of the market cap of the S&P 500 as of 7/8/24 , which is up from 29.8 % in the TTM ended 4Q23 . See Figure 2.
Note that this analysis is based on my team analyzing the financial statements and footnotes for ~3,000 10 - Ks and 10 - Qs filed with the SEC for 1Q24 results.
When Street Earnings are lower than Core Earnings , they are understated by an average of 16 % , per Figure 3.
Five S&P 500 companies are likely to beat calendar 2Q24 earnings because their Street EPS estimates are understated . Because investors and analysts tend to anchor their earnings projections to historical results , errors in historical Street EPS lead to errors in Street EPS estimates.
*Assumes Street Distortion as a percentage of Core EPS is the same in 4Q23 as the TTM ended 1Q24
Disclosure : David Trainer , Kyle Guske II , and Hakan Salt receive no compensation to write about any specific stock , style , or theme.
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