The Revenue Recession

If you thought estimates for earnings growth were low (we discussed this yesterday), wait til you see what The Street is estimating for revenue growth. 

Nicholas Colas is calling this “the Revenue Recession” in his note this morning for ConvergEx Group, where he is chief market strategist (emphasis mine):


Wall Street analysts have continued to curb their enthusiasm about revenue growth for Q2 2013, now posting an average increase of just 0.7% for the 30 companies in the Dow. Take out the financials, and the average drops to just 0.2%. Yes, Alcoa may have “Beat” revenue expectations tonight, but the comparison to last year was still negative.

Analysts have been trimming their numbers for almost a year – the average expected revenue growth for the Dow was a healthy 4% back in October 2012. The current average estimate is the lowest level of expectations since the Street started posting quarterly estimates for the just-completed quarter.

The trend here is oddly reminiscent of Q1 2013, where analysts hacked away at their revenue forecasts but still managed to miss the inflection point through zero. Actual results were negative 0.6%, with negative 0.1% for the non-financial names in the Average.

Wall Street is still more sanguine about the back half of the year – revenue growth expectations average 2.8-2.9% for the next two quarters. Given the direction of Q2 estimates, however, it will not be a surprise to note that these numbers were 4-5% back in March 2013.

If the second quarter of 2013 follows the same cadence as the first, with final results negative versus very modest positive expectations now, we will have two quarters of negative revenue growth. There, in an unwelcome nutshell, is your “Revenue recession”.

At the same time, literacy rates are reasonably high in America, especially if you have enough money to care about the stock market. So let’s assume markets generally understand that, on average, some of the very best-run large companies on offer currently find it impossible to grow their business. Does that merit a 15% year-to-date return? Or a 15-16x earnings multiple?


Josh here – Low expectations are a positive or investors – provided there is a reasonable chance they can be beaten. Are we too rosy about the prospects of a second-half pickup in sales? 


ConvergEx Group

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