Wall Street analysts are too bullish on fourth quarter earnings expectations for most S&P 500 companies. In fact, the percent of companies that overstate earnings is at its highest point since 2012 (earliest data available), which increases the likelihood of misses in the upcoming earnings season.
This report shows:
- the prevalence and magnitude of overstated Street Earnings in the S&P 500
- five S&P 500 companies with overstated Street estimates likely to miss 4Q21 earnings
- how Core Earnings and our Earnings Distortion factor provide a new source of alpha.
Get our report on the S&P 500 companies more likely to beat 4Q21 Street EPS estimates here.
Street Overstates EPS for 360 S&P 500 Companies – Most Since 2012
Over the trailing twelve-months (TTM) the 360 companies with overstated Street Earnings make up 81% of the market cap of the S&P 500, which is the highest share since 2012. See Figure 1.
Figure 1: Overstated Street Earnings as % of Market Cap: 2012 through 11/16/21
Sources: New Constructs, LLC and company filings.
When Street Earnings overstate Core Earnings, they do so by an average of 19% per company, per Figure 2. The overstatement was more than 10% of Street Earnings for 39% of companies.
Figure 2: S&P 500 Street Earnings Overstated by 19% on Average Through 3Q21
Sources: New Constructs, LLC and company filings.
This article originally published on January 10, 2022.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
 Only Core Earnings enable investors to overcome the flaws in legacy fundamental data and research, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan for The Journal of Financial Economics.
 Our Core Earnings research is based on the latest audited financial data, which is the calendar 3Q21 10-Q in most cases
 Average overstated % is calculated as Street Distortion, which is the difference between Street Earnings and Core Earnings.
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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