Despite Earnings Season Beats, Analyst Expectations Have Barely Budged

By most accounts the Q2 earnings reporting season has been a good one, with most companies surprising to the upside and some offering improved guidance for future numbers. In fact, according to FactSet, more companies have posted a positive sales surprise in Q2 than any quarter going back at least five years (chart 1). One would think the top line beats would find their way into analyst estimates for the next twelve months of sales and earnings, but that hasn’t happened. Despite all the positive surprises analyst have only raised the the next twelve month sales estimate by .69% for the median US mid and large cap company over the last month (chart 2, blue bars). The analysts have been a bit more generous for their EPS estimate revisions, but not by much. The median mid and large cap US company has only had its forward EPS estimate raise by 1.6% over the last month (chart 2, red line).

We are also seeing a lack of momentum in the breadth of estimates. Regardless of the 73% of companies that beat sales estimates so far in Q2, only 55% of companies have had its forward sales estimate improve compared to a month ago and only 54% of companies have had its EPS estimates improve over the last month. This suggests analysts are looking through Q2 results with an expectation of more of the same.