After a period of incessant noise about tariffs, interest rates, Syria and Facebook (FB, Financial), value investors are finally going to plunge into some real data.
Publicly traded companies are about to engage in public reporting of first-quarter earnings. In just hours, reports from three of the major banks, JPMorgan Chase (JPM, Financial), Citigroup (C, Financial) and Wells Fargo (WFC, Financial), are due out.
Of course, there’s always the fear that first-quarter results will disappoint, leading to slowdown in economic activity. But just from the looks of it, it should be a heyday for those who prefer the fundamentals over the news hype.
For companies in the S&P 500, growth forecasts show an increase in profits of up to 17.3%, signifying the largest projected increase since early 2011. The earnings review is compiled by FactSet, a Connecticut-based company, which has been compiling similar data for over a decade.
Companies with optimistic forecasts say the lower effective tax rate for corporations is driving their higher targets. Late last year, Congress passed the U.S. Tax Cut and Jobs Act, reducing the corporate tax rate to 21% from 35%.
FactSet also surveys companies that take part in indexes, including the Nasdaq Composite. A total of 53 companies have issued positive guidance on earnings per share for the first quarter of 2018. If that is the final number for the quarter, it will break a record set in 2010, when a total 47 companies issued positive earnings guidance. That is well above the five-year average of 28. In contrast, 52 companies have issued negative earnings per share guidance, a lot lower than the five-year average of 80.
The information technology sector had an unusually high number of companies that issued positive earnings guidance at 26, well above the five-year average of 11.
A number of indicators show there will be a variety of spots where investors will find solid balance sheets, with rising dividends and robust earnings growth.
In the IT sector, companies such as Adobe Systems Inc. (ADBE, Financial), Texas Instruments Inc. (TXN, Financial) and F5 Networks Inc. (FFIV, Financial) have credited the tax law for boosting earnings targets in 2018.
GuruFocus ranks all three companies with well above-average financial strength and strong profitability and growth. In afternoon trading on Thursday, all three of the companies saw stock values jump by up to 2%.
The Dallas-based semiconductor maker, Texas Instruments, is projecting revenue in the range of $3.49 billion to $3.79 billion. It is projecting earnings in the range of $1.01 to $1.17 per share. The figures are based on an estimated $30 million discrete tax benefit, according to FactSet. It is expected to report earnings April 24.
Plano, Texas-based F5 Networks provides software-defined application services designed to ensure applications delivered over the Internet Protocol networks are available to any user, anywhere, anytime on any device. The company reported revenues of $523 million in December 2017. It also reported total assets at $2.49 billion and cash and investments of $1.35 billion.
F5 Networks' next-quarter GAAP earnings target is $1.66 to $1.69 per share. The non-GAAP earnings target is $2.24 to $2.27 per share.
California-based computer software developer Adobe is projecting total revenue at around $2.15 billion for fiscal year 2018. It is also projecting GAAP earnings of $1.16 per share. The non-GAAP estimate is $1.53 per share.
Former Adobe Chief Financial Officer Mark Garrett, who just retired, said the drop in effective tax rates were “driving a significant increase in our earnings per share targets.”
Garrett also said the company now has ready access to offshore cash, which will allow it to evaluate investment opportunities.
It is expanding its facilities in the San Francisco area and Utah to accommodate a larger workforce.
The company is expected to report second-quarter earnings in June. Its most recent earnings report was last month.
