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3Q21 Earnings: Where the Street is Too High & Who Should Miss

New Constructs

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Investment Analyst

Wall Street analysts are too bullish on third quarter earnings expectations for 75% of S&P 500 companies.

In theory, Wall Street analysts adjust EPS for unusual gains and losses that distort reported EPS. In reality, they do not. Street EPS estimates are materially misleading more often than investors realize[1].

This report shows:

  • five S&P 500 companies with overstated Street estimates likely to miss 3Q21 earnings
  • why Street Earnings, GAAP Earnings, and consensus estimates are flawed
  • how our Core Earnings[2] and Earnings Distortion factor generate novel alpha

Get our report on the S&P 500 companies more likely to beat 3Q21 Street EPS estimates here.

Street Overstates EPS for 375 S&P 500 Companies

Per Figure 1, Street EPS overstate Core EPS for 75% of S&P 500 companies for the trailing-twelve-months (TTM) ended calendar 2Q21[3]. For 43% of S&P 500 companies, Street EPS are overstated by more than 10% (examples are below).

Figure 1: Street Earnings Are Overstated for a Large Amount of S&P 500 Companies

Street Earnings Are Overstated for a Large Amount of S&P 500 Companies

Sources:  New Constructs, LLC and company filings.

When the Street EPS overstates Core EPS, it does so by an average of 24% per company, see Figure 2.

Figure 2: Street Earnings Overstate by 24% on Average

Street Earnings Overstate by 24% on Average

Sources:  New Constructs, LLC and company filings.

Click here to read the full article

This article originally published on October 8, 2021.

Disclosure: David Trainer, Kyle Guske II, Alex Sword, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] The same is true for other well-known “adjusted” measures of earnings: S&P’s “Operating Earnings” Remain Overstated in 2Q21.

[2]The Journal of Financial Economics proves that only Core Earnings enable investors to overcome the flaws in legacy fundamental data.

[3] The most recent Core Earnings and Street Earnings values are based on the latest audited financial data from calendar 2Q21 10-Qs.

Click here to download a PDF of this report.

Disclosure: New Constructs

Disclosure: David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.

About New Constructs

New Constructs leverages cutting-edge Robo-Analyst technology to provide insights and diligence on stocks, ETFs, mutual funds & debt issuers. Highly-respected public and private institutions believe in our concepts::

– Fundamental data and earnings: Core Earnings: New Data and Evidence

– Models for NOPAT, Invested Capital and Return on Invested Capital (ROIC): Getting ROIC Right

– Stock ratings: Robot Analysts Outwit Humans on Investment Picks

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