So far this earnings season, 68% of the companies in the broad Standard & Poor’s 500 index that have reported results for the fourth quarter of 2012 have beat Wall Street’s expectations, according to Thomson Reuters.
Typically, 62% of the companies beat expectations. (As of early Friday, 147 of S&P; companies, fewer than one-third of the benchmark index’s component firms, had reported.)
That should be promising to investors. Indeed, strong earnings helped push the S&P; 500 above 1,500 points Thursday, its first time above that threshold since 2007.
The latest analyst estimates indicate that the S&P; 500 companies are on track to report 2.9% earnings growth on average for the fourth quarter, compared with a year earlier, according to Thomson Reuters.
But that’s far lower than the 9.9% growth analysts projected as of Oct. 1.
Although analysts’ estimates typically come down as companies get closer to reporting earnings, Greg Harrison, a research analyst at Thomson Reuters, said: “This time [the drop] was more dramatic than usual.”
That’s because analysts sharply lowered their estimates last quarter after companies signaled that their projections were too high, Harrison said. So the companies have been beating, but the bar has been lowered.
But profit may not matter as much as revenue. Investors will be keeping an eye on top-line growth to see how well companies are bringing in money and expanding. Sluggish revenue growth disappointed investors late last year.
So far, 65.3% of the companies have reported higher revenue than analysts expected -- more than the typical 62%, according to Thomson Reuters.
But Harrison said the average company’s revenue was expected to grow only 0.7% in the first quarter of this year.