We are again at the starting point of another earnings season, the first one for this year. Earnings outcome of companies play a key role in gauging the performance, helping investors with their investment decisions. As we stand to witness another thrilling season, let's focus on some expectations.
Initial results from the S&P 500 cohort indicate that Q1 earnings started on a strong note with a considerably higher proportion of companies, posting positive earnings surprises. Further, the earnings and revenue growth rates were also noteworthy. However, there has been a slowdown in the positive revenue surprise trend compared with the previous quarter. Nevertheless, the proportion was almost comparable with the historic levels.
Moreover, we note that estimates for the current quarter (Q2) are reasonably stable since the start of the Q1 reporting cycle. While this is too early to expect movement in the estimates, we believe that the chances of estimate revision will improve as we move into the core Q1 earnings season.
Per the Earnings Preview
dated Apr 20, only 87 S&P 500 members have reported earnings so far, leaving us with more than 680 companies, including 178 S&P 500 members, to come up with their results. So far, we have seen total earnings improve 25% year over year, with revenue gains of 10.7%. Of these, 82.8% have topped earnings estimates while 67.8% beat revenue estimates. This brings the combined beat ratio to 62.1%.
Putting together the results so far and forward expectations, total earnings for the S&P 500 are estimated to improve 18.3%, with 7.7% increase in revenues. Based on these expectations, this earnings season is likely to witness the best performance in six years. A Glimpse of Consumer Discretionary Sector
The performance of the index is determined by all 16 Zacks sectors, out of which, 14 are estimated to witness year-over-year earnings growth. The Consumer Discretionary
sector mainly houses major media stocks, leisure & recreation service providers, schools, gaming, household appliances, furniture and more. Per the report, the Consumer Discretionary sector is likely to witness earnings growth of 7.2% while revenues are expected to increase 6.8% this earnings season.
Currently, the Consumer Discretionary sector is ranked among the bottom 38% (10 of 16) of all the Zacks sectors. The sector has rallied 5.1% in the past year, underperforming the S&P 500 market's gain of 12.2%.
So, let's see what awaits the two stocks from the sector that are queued up for earnings releases on Apr 26.
Our research shows that stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP have higher chances of delivering positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
Key Predictions for LEG and MHK
Leggett & Platt Inc. LEG , the producer and seller of furniture and other engineered goods for office and home, carries a Zacks Rank #4 (Sell). Moreover, its Earnings ESP of-6.17% makes a surprise prediction impossible. Leggett remains highly susceptible to volatility in raw material prices, particularly steel. In fact, this has been hurting the company's top- and bottom-line performances in last few quarters. Further, margins remain under pressure, mainly due to steel costs inflation, which is likely to continue hurting margins in first-quarter 2018.
Meanwhile, Leggett's strategies to enhance business portfolio, disciplined capital allocation and progress on goals for 2019 look encouraging. Additionally, the company remains on track to achieve its top-third TSR target by 2020 through revenue growth, margin enhancement and shareholder-friendly moves. (Read: Will Steel Cost Inflation Hurt Leggett's Q1 Earnings? )
Mohawk Industries, Inc. MHK , the leading global manufacturer of flooring products, is likely to beat expectations in the to-be-reported quarter. It fulfills the Zacks earnings beat criteria as it has an Earnings ESP of +0.21% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .
Mohawk is expected to benefit in the to-be-reported quarter from the expansion of LVT in the United States and Europe; ceramic capacity increases in the United States, Mexico, Italy, Poland, Bulgaria and Russia; luxury laminate in the United States, Europe and Russia; carpet tile in Europe; sheet vinyl in Russia; countertops in the United States and Europe; and carpet and rugs in the United States. Apart from this, the company is likely to benefit from the strategy of driving growth through acquisitions, which will be evident in the to-be-reported quarter. However, increased raw material costs, as well as start-up expenses behind new products and manufacturing, continue to raise concerns. (Read: Will Product Innovation Drive Mohawk's Q1 Earnings? )
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Leggett & Platt, Incorporated (LEG): Free Stock Analysis Report Mohawk Industries, Inc. (MHK): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research