Josh here – the theme of the latest note from Nicholas Colas, ConvergEx Group chief market strategist, is that obviously Macro is trumping Micro – because on the earnings and revenue front analysts have spent the last four months chopping expectations. And stocks rallied anyway.
Here’s a look at the consensus expectations for the Dow 30 names:
- Back in April the analysts that cover the 30 companies of the Dow Jones Industrial Average were showing their clients financials models which predicted that Q3 2012 would be a solid period of top-line growth – somewhere between 3-4%. The faster growth would come from the non-financial companies of the Dow, where revenue comps would be over 4% versus prior year.
- As we close out the final days the same third quarter, those same models from those same analysts now show outright declines in expected revenues from the prior year. The average for all 30 companies is now (0.6%), and the non-financial names are expected to essentially flat to last year, down 0.2%. Global inflation is still positive, remember, so this slip in top line growth indicates an outright contraction in unit volume demand and/or a meaningful slip in product mix.
- These same analysts are still cutting their expectations for revenue growth for Q4 2012 and Q1 2013. These comps are still (or for the moment) in positive territory. Wall Street expects Q4 to post a 2.8% average rate of revenue growth for the Dow companies, and +2.9% for the non-financial names in the index. This is still a big haircut, however, from the 6-7% comp expectations of April 2012. For the first quarter of 2013, analysts currently show a 3-4% expected growth rate versus Q1 2012. Again, that is substantially lower than the 5-6% expectations from their models of May 2012.
- As it stands right now, therefore, sell-side analysts seem to expect Q3 2012 to be the “Trough” for revenue growth – a short dip followed by a resumption of expansion into next year. Whether that holds will come down to two catalysts. The first is what companies have to say about their current business conditions when they report earnings next month. The second will be what happens when analysts really pull out the pencil and work through their quarterly estimates for next year. Up to now, those numbers have been more placeholders than well considered and vetted estimates.