To date, 36% of the companies in the S&P 500 have reported earnings for the fourth quarter. Of these companies, 77% have reported actual EPS above the mean EPS estimate, which is equal to the 5-year average of 77% and above the 10-year average of 75%. In aggregate, earnings have exceeded estimates by 5.0%, which is below the 5-year average of 8.5% and below the 10-year average of 6.7%. Given this mixed performance relative to the averages, how has the market responded to EPS surprises reported by S&P 500 companies during the Q4 earnings season?
To date, the market is rewarding positive earnings surprises reported by S&P 500 companies more than average for the fourth quarter.
Companies that have reported positive earnings surprises for Q4 2024 have seen an average price increase of 1.5% two days before the earnings release through two days after the earnings release. This percentage increase is larger than the 5-year average price increase of 1.0% during this same window for companies reporting positive earnings surprises.
One example of a company that reported a positive EPS surprise for Q4 and witnessed a significant increase in stock price is Netflix. On January 21, the company reported actual (GAAP) EPS of $4.27 for Q4, which was above the mean (GAAP) EPS estimate of $4.21. From January 17 to January 23, the stock price for Netflix increased by 14.8% (to $984.86 from $858.10).
However, the market is also punishing negative earnings surprises reported by S&P 500 companies slightly less than average for the fourth quarter.
Companies that have reported negative earnings surprises for Q4 2024 have seen an average price decrease of 2.2% two days before the earnings release through two days after the earnings release. This percentage decrease is slightly smaller than the 5-year average price decrease of 2.3% during this same window for companies reporting negative earnings surprises.
One example of a company that reported a negative EPS surprise for Q4 and witnessed an increase in stock price is AutoZone. On December 10, the company reported actual (GAAP) EPS of $32.52 for Q4, which was below the mean (GAAP) EPS estimate of $33.56. From December 6 to December 12, the stock price for AutoZone increased by 0.9% (to $3,340.48 from $3,309.44).
What is driving the market’s more positive (and less negative) reactions to EPS surprises for Q4?
It may be due to positive EPS guidance issued by S&P 500 companies to date for the first quarter. In terms of EPS guidance, the percentage of S&P 500 companies issuing positive EPS guidance for Q1 is above average. At this point in time, 25 companies in the index have issued EPS guidance for Q1 2025. Of these 25 companies, 12 have issued negative EPS guidance and 13 have issued positive EPS guidance. The percentage of companies issuing positive EPS guidance for Q1 2025 is 52% (13 out of 25), which is above the 5-year average of 42% and above the 10-year average of 38%.
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