Impressive Tech Sector Earnings

Earnings growth was negative for the all-important Tech sector in the first three quarters of 2019 and the Q4 earnings season was expected to give us another earnings decline. But that’s not how this earnings season has unfolded for the Tech sector, with bellwether players like Apple (AAPL) and Microsoft (MSFT) hitting it out of the park. In fact, even Intel (INTC), no longer anyone’s idea of a Tech star, impressed with its results and guidance.

With results from two-thirds of the sector’s market capitalization in the S&P 500 index already out, we can confidently say that there is clear momentum in the sector’s Q4 results.

We now have Q4 results from 67% of the Tech sector’s market capitalization in the S&P 500 index. Total earnings (or aggregate net income) for these Tech companies are up +4.8% from the same period last year on +5.1% higher revenues, with 85.7% beating EPS estimates and 89.3% beating revenue estimates.

The comparison charts below put the earnings and revenue growth rates from these Tech companies in the context of what we saw from the same group of companies in the first three quarters of the year.

Please note that we deliberately restricted the comparisons to the first three quarters of 2019, as the 2018 data reflected the benefit of the tax cut legislation, making this type of comparison difficult.

The proportion of positive EPS and revenue beats is also tracking above historical periods, as the comparison charts below show.

For Q4 as a whole for the sector, combining the results that have come out with estimates for the still-to-come Tech companies, total earnings are now expected to be up +2% from the same period last year on +5.6% higher revenues.

Unless Google’s parent Alphabet (NASDAQ:GOOGL) (GOOGL), which reports Q4 results after the market’s close on Monday February 3^rd, disappoints in a major way, the sector should end the quarter with positive growth. Other notable Tech players reporting results this week include Qualcomm (QCOM), Twitter (TWTR) and Spotify (NYSE:SPOT) (SPOT).

Q4 Scorecard (as of Friday, January 31st)

Through Friday, January 31^st, we have Q4 results from 227 S&P 500 members. Total earnings or aggregate net income for these companies is up +2.9% from the same period last year on +3.4% higher revenues, with 72.2% beating EPS estimates and 67.5% beating revenue estimates.

The comparison charts below put these results in the context of what this same group of 2+2+7 index members have been reporting in other recent periods. The first set of charts compare the beats percentages while the second set does a similar comparison for Q4 earnings and revenue growth rates.

Q4 EPS & Revenue Beats % Compared.

Q4 Earnings & Revenue Growth Rates compared.

Q4 Expectations for the S&P 500 Index

Looking at Q4 expectations as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings (or aggregate net income) for the S&P 500 index are expected to be down -0.6% from the same period last year on +4+.9% higher revenues, with 7 of the 16 Zacks sectors expected to have lower earnings than the year-earlier period.

The table below shows the summary picture for Q4, contrasted with what was actually achieved in the preceding earnings season.

The chart below shows Q4 earnings and revenue growth expectations contrasted with what is expected in the following four quarters and actual results in the preceding 4 quarters. As you can see, the growth pace is expected to start improving from next quarter onwards.

For an in-depth look at the overall earnings picture and expectations for Q4, please check out our weekly Earnings Trends report >>>> Earnings Outlook Improving

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