Earnings Watch: Expectations remain high

Earnings Watch: Expectations remain high

Equities 8 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  Q3 earnings reports continue to trickle in even though the season has officially ended. One of the most striking features is the widespread optimism on what lies ahead despite rising uncertainty around the globe.


The official Q3 earnings season has ended but many companies are not following the usual calendar and thus earnings releases are still being published. This week around 36 earnings are released with no major companies reporting important earnings.

Given the US-China trade war and rising uncertainty this year with global equities down 3% it is quite interesting to observe that 12-month forward EBITDA estimates are still up for the year. Even more strikingly, it has remained very stable throughout the year and even during October when you would have imagined sell-side analysts to have reduced their estimates.

It seems like the equity market is too complacent as the recession risk is rising and for equity analysts not revising their numbers down it’s a dangerous sign. It’s very likely that current forward estimates are too optimistic going into 2019.
Source: Saxo Bank
Usually we only highlight the major companies reporting earnings but in this week’s Earnings Watch we focus on names we don't usually focus on.

Toll Brothers

Reports FY18 Q4 earnings on Tuesday (aft-mkt) with analysts expecting EPS $1.83 up 55% y/y and revenue at $2.35bn up 16% y/y. It has been a tough year for Toll Brothers with the stock price down 31% mostly driven by lower sentiment on US housing as rising interest rate expectations have slowed housing starts and permits. Last quarter showed better than expected orders intake and margins are still stable despite concerns over cost headwinds. The earnings release is the first since Fed chair Powell’s latest speech slowing interest rate expectations, so any comments from management on the US housing market given these developments are of interest to investors in general.

Lululemon Athletica

Reports Q3 earnings on Wednesday (aft-mkt) with analysts expecting EPS $0.69 up 24% y/y and revenue at $736mn up 19% y/y. This is a highly anticipated earnings release as many momentum traders have been buying into the incredible strength this year as the share price has risen 69% despite ongoing weakness across the board in the US equities. The stock is richly valued at 12-month trailing EV/EBITDA ratio at 24.2 which is almost double global equities. High valuations always increase the risk over an earnings release so we expect volatility to be high around this earnings release.

Momo

Reports Q3 earnings on Wednesday (bef-mkt) with analysts expecting EPS $0.53 up 18% and revenue at $533mn up 50% y/y. Momo is a social media company based in China and has been profitable for the past four years showing margin expansion. The company has historically surprised against earnings estimates. The stock price typically moves around 11% over the earnings release.

The table below shows the 30 largest companies reporting earnings this week.
 

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992