Reporting season in Q4: decent results are likely, but expect some poorer company guidance for Q1

In Short

The Q4 reporting season has just started in the US (13 companies reported). The yearly earnings growth has been so far slightly below that of Q3 with comparable number of results reported (25% vs 26%). The same is true when we look at the results of the median stock (15% vs 20%).
Market Commentary

Highlights:

  • The Q4 earnings reporting season has just started in the US (13 reported), with yoy growth being so far slightly below Q3 (25% vs 26%). Overall, analysts expect yoy growth to be 22% in Q4 vs 43% in Q3.  
  • With increasing signs of a peaking cycle and lower momentum in capacity utilization, the yoy growth will decelerate till 2022Q2.
  • The Omicron variant would affect companies’ earnings guidance through some additional restrictions, lingering supply chain disruptions and lower propensity to buy during Christmas holidays.  
  • That said, we still expect a positive backdrop for earnings in Q4, as macro surprises have increased since September. EA earnings will benefit from weaker TW euro, while US ones are penalized by stronger TW USD.  
  • Furthermore, solid pricing power and growth will keep margins upbeat. Amid strong demand and high excess savings, rising input costs are passed to consumers. 
  • In our base scenario of Omicron representing a non-disruptive event, the 2022 will be positive for equities due to a sustained nominal GDP growth triggering an earnings growth of 10% (around consensus). We stay below our models’ results (+12-14%) due to possible lower margins via the cited lower capacity utilization, high-for-longer input costs, wage lifts and lower deficit spending vs 2021.  
  • We see an average total return of 7%, notwithstanding a mild PE compression (-4%) due to a more mature phase of the cycle, lower policy support and high inflation environment. Negative real bond yields will continue to score badly vs. positive equity ones. 

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Reporting season in Q4: decent results are likely, but expect some poorer company guidance for Q1
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