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RESULTS IMPRESS BUT GUIDANCE AND BREADTH BEAR WATCHING

While fourth-quarter 2024 earnings growth is on track for its strongest level since 2021, financial guidance is looking less stellar, according to the latest research from BofA, led by equity and quant strategist, Ohsung Kwon.

With quarterly updates already released by 385 companies - 84% of the S&P 500 and 80% of its market cap - the 2025 earnings per share estimate has fallen by 1%, according to the report.

And the EPS estimate decline to $271, while in line with typical seasonality from 2001-2023, is still a bigger cut than the 0.4% average for non-recessionary years, according to BofA.

Kwon notes that the cut was led by a 7% drop in materials .SPLRCM estimates, while financials .SPSY saw a 1.5% boost.

Kwon also writes that in non-recessionary years full-year EPS ultimately came in 1.0% above where consensus stood in mid-February. So this would imply $274 EPS for 2025 versus BofA's $275 estimate, which implies 13% growth year over year.

But he also notes that the first quarter EPS estimate has been cut by 3.3% YTD, which is deeper than a typical 2.4% cut for this point in time.

And Kwon notes that guidance is still relatively weak, while the BofA corporate sentiment score rose to a record high, based on the number of positive versus negative words on earnings calls.

So far this year, there have been two times as many below-consensus guides than above-consensus, according to Kwon. But he says that this is in line with the historical median in January-February, when guidance is seasonally weak, and is better than it was tracking a week ago.

Looking again at fourth quarter 2024, BofA points out that earnings growth was broadening slightly, with 70% of companies on track to post positive EPS growth year over year versus 67% in 3Q.

But while 87% of companies are now expected to grow EPS by the fourth quarter of 2025, this is down from the 96% expectation on January 1.

On the positive side for breadth, 30% of companies are expected to outpace the "Magnificent 7" group of companies' EPS growth by the fourth quarter of 2025, compared with the lows, reached in the second half of 2023, that only 8% would do this.

But BofA cautions that the EPS growth spread between the Magnificent 7 and the other 493 companies continues to widen.

This is with the 493's 2025 EPS estimate being reduced by 1.2% so far this year compared with the corresponding reduction for Magnificent 7 estimates of just 0.2%.

However, with reports from big retailers and AI chip leader Nvidia NVDA.O still to come, there is still some key data that will need to be added to their analysis.

(Sinéad Carew)

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