2007 results have come in better than expected
Close to 60% of DJ Stoxx 600 companies have reported full-year results. So far, 23% of companies have positively surprised by more than one standard deviation, and 11% have negatively surprised. The average surprise has been +1.2%. On an absolute basis, 55% of companies have beaten estimates and 43% have missed, which is slightly better than the historical averages of 53% and 46%, respectively.
On a sector basis, the strongest results have been in Travel & Leisure, Media and Financial Services. Retail companies have also posted strong results thus far, but a majority still has to report earnings in upcoming weeks. The most negative results have been in Basic Resources, Chemicals, and Industrial Goods & Services.
But negative revisions continue to drive sector performance
Consensus EPS estimates for 2008 have fallen 3% and 2008 growth has been revised down to 8% from close to 10% at the beginning of the year. Our top-down model suggests growth of -8%, implying that further negative revisions are likely. The most negative revisions have been in Technology (-8%), Banks (-6%), and Travel & Leisure (-5%). The only positive revisions have been in the Chemicals sector.
There has been an inverse relationship between 2007 surprises and revisions to 2008 estimates. This is surprising, as we would expect a positive relationship. Generally, stronger results are extrapolated to the future.
Thus far, the sectors with the strongest results have also been the sectors with the most negative revisions. Revisions to 2008 consensus estimates, a forward-looking measure, appear to be a better predictor of performance than surprises based on 2007 estimates, a backward-looking measure.
Close to 60% of DJ Stoxx 600 companies have reported full-year results. So far, 23% of companies have positively surprised by more than one standard deviation, and 11% have negatively surprised. The average surprise has been +1.2%. On an absolute basis, 55% of companies have beaten estimates and 43% have missed, which is slightly better than the historical averages of 53% and 46%, respectively.
On a sector basis, the strongest results have been in Travel & Leisure, Media and Financial Services. Retail companies have also posted strong results thus far, but a majority still has to report earnings in upcoming weeks. The most negative results have been in Basic Resources, Chemicals, and Industrial Goods & Services.
But negative revisions continue to drive sector performance
Consensus EPS estimates for 2008 have fallen 3% and 2008 growth has been revised down to 8% from close to 10% at the beginning of the year. Our top-down model suggests growth of -8%, implying that further negative revisions are likely. The most negative revisions have been in Technology (-8%), Banks (-6%), and Travel & Leisure (-5%). The only positive revisions have been in the Chemicals sector.
There has been an inverse relationship between 2007 surprises and revisions to 2008 estimates. This is surprising, as we would expect a positive relationship. Generally, stronger results are extrapolated to the future.
Thus far, the sectors with the strongest results have also been the sectors with the most negative revisions. Revisions to 2008 consensus estimates, a forward-looking measure, appear to be a better predictor of performance than surprises based on 2007 estimates, a backward-looking measure.
