Companies Are Giving Earnings Guidance Again. Why That’s Good for Stocks. – Barron’s

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The S&P 500 and the Nasdaq closed at record highs on Monday.

NYSE

Companies are giving earnings guidance again—and they’re upbeat about what’s ahead. That optimism lays the foundation for more stock gains

Many management teams put the kibosh on their forecasts last year because the pandemic made it nearly impossible to accurately nail down profits.

In 2020’s second quarter, for example, only 53 S&P 500 companies gave guidance. Investors were left to make informed guesses—based on vaccination numbers, stimulus packages and whatever they could glean from the quarterly financial reports.  

For 2021’s second quarter, the number of S&P 500 companies that made forecasts is 103—almost double from the same period last year, according to DataTrek. And that number should grow since earnings season isn’t even in full swing yet. 

Not only are companies forecasting again, but they’re estimating higher profits than analysts. So far in the second quarter, 66 companies have issued stronger guidance than analysts. 

All are indications are that earnings estimates are too low, writes Nicholas Colas, co-founder of DataTrek. 

Analysts’ current aggregate second quarter S&P 500 earnings per- share estimate is $44.79, well below their first-quarter forecast of $49. The combination of more corporate guidance and the low second-quarter earnings forecast “says the Street is likely still too conservative for most of the rest of the index’s constituents,” Colas writes. 

The upshot: Stocks can still gain more from here. Higher earnings estimates are never bad for stocks and “Q2 2021 earnings season needs to show real upside to Wall Street expectations to keep the current US bull market on track, and the last 2 weeks’ ‘guidance season’ confirms that it should,” Colas writes. 

Investors, be sure to read those earnings reports as they trickle in.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com