A recent report on overstated street earnings in 1Q24 shows that for the majority of S&P 500 companies, street earnings based on Zacks earnings are overestimating profits. However, there are 122 companies within the S&P 500 where the TTM 1Q24 street earnings are actually lower than their true profits, referred to as core earnings. This is based on the latest audited financial data available, such as the calendar 1Q24 10-Q in most cases, with price data as of 5/16/24 and quarter-over-quarter analysis based on the change since the last quarter. These companies may be more profitable than investors realize and could be undervalued as well.
The report highlights the magnitude of understated street earnings within the S&P 500 and explains why street earnings, as well as GAAP earnings, may be flawed. In addition, the report identifies five S&P 500 companies with understated street earnings that also have attractive or better stock ratings. This information can be valuable for investors looking for opportunities where street earnings may not accurately reflect the true profitability of a company.
For 122 companies within the S&P 500, or 24% of the total, street earnings were lower than core earnings in the TTM ended 1Q24. On average, when street earnings are lower than core earnings, they are understated by about 16% per company. These 122 companies represent 29% of the market cap of the S&P 500 as of 5/16/24, which is slightly lower than the 30% seen in the TTM ended 4Q23. This analysis is based on a thorough review of financial statements and footnotes from approximately 3,000 10-Ks and 10-Qs filed with the SEC after earnings season.
There are 41 companies within the S&P 500 where street earnings are understated by more than 10% compared to core earnings. These companies make up about 6% of the market cap of the S&P 500 as of 5/16/24. The report also highlights five S&P 500 stocks with attractive or better stock ratings that have the most understated street earnings in the TTM ended 1Q24. These companies may be offering investment opportunities for those who recognize that relying solely on street earnings may not provide a complete picture of a company’s true profitability.
Overall, the report sheds light on the issue of overstated street earnings in the S&P 500 and the potential implications for investors. By identifying companies with understated street earnings and attractive stock ratings, investors may be able to uncover opportunities where the true profitability of a company is not accurately reflected in its street earnings. It’s important for investors to conduct thorough research and consider multiple factors when making investment decisions to ensure they have a comprehensive understanding of a company’s financial health and potential for growth.
