In this earnings season, most $.SPX(.SPX)$ companies exceeded EPS expectations, although the overall magnitude of the surprises was lower than historical levels.
Nevertheless, the strong performance of leading sectors drove both earnings and revenues higher, and the market remains cautiously optimistic about growth in the coming quarters.
How do S&P companies perform in this earnings season?
77% of companies delivered positive EPS surprises, with an average EPS surprise of +5.0%—well below the 5-year average of +8.5%.
On the revenue side, 63% of companies beat expectations, but the average revenue surprise was only +0.9%. The blended earnings growth rate reached 13.2%, the highest level since Q4 2021, while the revenue growth rate stood at 5.0%.
How does market react to EPS surprises?
Companies reporting positive EPS surprises saw their stock prices rise by an average of 1.5%, significantly higher than the 5-year average of 1.0%.
Conversely, negative EPS surprises resulted in an average stock price decline of 2.2%, slightly lower than the historical average of 2.3%.
Strong earnings in core sectors drives overall performance
Overall, performance has improved compared to last week and the beginning of the quarter, mainly driven by the stellar results in the Communication Services, Information Technology, and Financial sectors, while the Energy and Industrials sectors faced considerable downward pressure.
The impressive performances in the Communication Services and Information Technology sectors have also lifted overall earnings expectations.
Among 11 major sectors, 7 recorded year-over-year earnings growth—with the Financial, Communication Services, Information Technology, Consumer, and Utilities sectors all achieving double-digit growth—while the Energy and Industrials sectors experienced declines.
In Q4 2024, the overall net profit margin reached 12.1%, slightly higher than the previous year and above the 5-year average for some sectors.
Notably, the Financial, Information Technology, and Communication Services sectors enjoyed relatively high profit margins, whereas the Materials, Healthcare, and Energy sectors lagged, highlighting significant differences in profitability across industries.
Looking ahead, analysts expect both earnings and revenues to continue growing.
The forward 12-month price-to-earnings ratio stands at 22.0, which is higher than the 5-year average of 19.8 and the 10-year average of 18.2, indicating that the market remains cautiously optimistic about future growth despite elevated valuations.
Furthermore, the target price is anticipated to be 12.4% above current levels, and "Buy" ratings account for 54.7% of overall ratings, reflecting strong investor confidence.
In summary, although the magnitude of EPS and revenue surprises has narrowed compared to historical levels, the robust performance of leading sectors has effectively driven overall earnings and revenue growth.
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