For the fourth quarter, 75 companies in the S&P 500 have issued negative EPS guidance and 35 companies in the S&P 500 have issued positive EPS guidance. The number of companies issuing negative EPS is below the five-year average (80), while the number of companies issuing positive EPS guidance is above the five-year average (28).
At the sector level, the Information Technology (36) and Consumer Discretionary (23) sectors have the highest number of companies issuing EPS guidance for the fourth quarter. This is not surprising, as these two sectors have historically had the highest number of companies providing quarterly EPS guidance on average. What is surprising, however, is the unusually high number of companies issuing positive EPS guidance in the Information Technology sector.
The number of companies issuing positive EPS guidance in the Information Technology sector for Q4 2017 is 18, which is well above the five-year average (10) for the sector.
If the final number for the quarter is 18, it will mark a tie with the previous quarter (Q3 2017) for the third highest number of companies issuing positive EPS guidance in the Information Technology sector since FactSet began tracking EPS guidance in 2006. The current record high is 21, which occurred in Q3 2010.
At the industry level, 12 of the 18 companies that have issued positive EPS guidance in the Information Technology sector are in the Semiconductor & Semiconductor Equipment (seven) and Software (five) industries.
The Information Technology sector is expected to report the third highest earnings growth of all eleven sectors in Q4 2017 at 15.9%. This sector is also one of four sectors that have seen an increase in the estimated earnings growth rate for Q4 since the start of the fourth quarter. On September 30, the estimated earnings growth rate for this sector was 12.5%.
What is Driving the High Number of Positive EPS Preannouncements in the Information Technology Sector?
One factor driving the increase is the unusually high number of companies in this sector issuing positive revenue guidance. Overall, 27 companies in the Information Technology sector have issued positive revenue guidance for the fourth quarter. This number is well above the five-year average (16) for the sector. Of the 18 companies in this sector that have issued positive EPS guidance, 14 have also issued positive revenue guidance.
In addition to specific guidance on EPS and revenues, a number of companies in the Information technology sector provided positive comments on the outlook for their specific products, businesses, and industry in general.
What Are Companies Saying?
“Turning to our outlook, we continue to see strength in our core business around product subscriptions, EBAs and our ongoing maintenance, and are seeing the trends we expected for total ARR which is the key driver for our long-term model. We're holding steady or slightly increasing most of our guidance metrics.” –Autodesk (Nov. 28)
“Looking ahead, we're encouraged by a number of positive indicators across our business, including the strong secular growth drivers, a robust opportunity pipeline and access to customers at an unprecedented level, which, combined with our strong free cash flow and commitment to deleveraging, will continue to drive value for our shareholders.” –Analog Devices (Nov. 21)
“We have good visibility into our expected performance in Q4. Our pipeline has strengthened considerably and a couple of large deals are already in. As such, we are raising our Q4 guidance by $6 million at the midpoint. Because of our increased confidence in Q4 and the over-performance in the third quarter, we are raising our 2017 guidance by $20 million at the midpoint.” –ANSYS (Nov. 2)
“Based on these factors, we're raising our full-year revenue guidance by $700 million to $62 billion, operating income guidance by $900 million to $18.8 billion, and EPS guidance by $0.25 to $3.25 per share. The improvement in revenue outlook is primarily driven by higher expectations of the PC business and continued momentum in memory. The improvement in operating margin is primarily driven by our increased revenue outlook and lower spending. The increase in EPS is driven by higher expectations of revenue coupled with gains on the sale of our equity investments.” –Intel (Oct. 26)
“Given consensus expectations for WFE growth in the mid to high single-digits next year, our expectations for another year of strong memory investment, improving process control intensity in memory, contributions from new products and continued high single-digit annual growth and services, we are modeling total revenue in the $4 billion range in 2018.” –KLA-Tencor (Oct. 26)
“We're very encouraged by the company's robust performance thus far in 2017 as well as by our strengthened outlook here for the fourth quarter and full year. And I remain very confident in the ability of our outstanding management team to build upon these results by continuing to capitalize on the many opportunities to grow our market position and deliver strong financial performance in 2017 and beyond.” –Amphenol (Oct. 25)
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.