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For Q2 2017, 75 companies in the S&P500 have issued negative EPS guidance and 37 companies in the S&P500 have issued positive EPS guidance. While the number of companies issuing negative EPS is slightly below the 5-year average (79), the number of companies issuing positive EPS guidance is well above the 5-year average (27). If 37 is the final number for the quarter, it will be the highest number of S&P500 companies issuing positive EPS guidance since Q1 2012 (also 37).
What is driving the high number of positive guidance for the second quarter? At the sector level, the Information Technology and Health Care sectors have the highest number of companies issuing positive EPS guidance for the quarter.
In the Information Technology sector, 17 companies have issued positive EPS guidance for the second quarter. This umber is well above the 5-year average for the sector (9). If 17 is the final number for the quarter, it will mark the third highest number of companies issuing positive EPS guidance for this sector since FactSet began tracking EPS guidance in 2006. 9 of these 17 companies are in the Semiconductor industry. This industry is projected to report the highest earnings growth (40%) of the seven industries in this sector.
In the Health Care sector, 10 companies have issued positive EPS guidance for the second quarter. This number is well above the 5-year average for the sector (3). If 10 is the final number for the quarter, it will mark the highest number of companies issuing positive EPS guidance for this sector since FactSet began tracking EPS guidance in 2006. 5 of these 10 companies are in the Health Care Equipment & Supplies industry. This industry is projected to report the highest earnings growth (10%) of the six industries in this sector.
The term “guidance” (or “preannouncement”) is defined as a projection or estimate for EPS provided by a company in advance of the company reporting actual results. Guidance is classified as negative if the estimate (or mid-point of a range estimates) provided by a company is lower than the mean EPS estimate the day before the guidance was issued. Guidance is classified as positive if the estimate (or mid-point of a range of estimates) provided by the company is higher than the mean EPS estimate the day before the guidance was issued.
Reliance Industries Ltd (RIL) has hit 1200 today, making 8 year high, on the back of positive news from Reliance Jio, which has got 100 million customers in less than 6 months! With Jio, Reliance is transfporming into a digital technology company in addition to being a leading energy and petrochemicals company. And we like this journey because this is the “Tech century” and Jio is creating a very large digital platform, which includes telecom. In fact, Telecom companies worldwide need to transform rapidly to survive because the Internet is breaking their conventional business models of high margin. Reliance is one of our main stocks across all markets, and one of the safest stocks for trading and long term investing. But it has gained 11% today and closed at 1208, gaining Rs 120 in a single trading session today, and now its movement is very uncertain. It could be due to major scale short covering because these levels are unseen in Reliance in last 8 years. We have been long on Reliance and have also advised our traders/clients to stay long. Our first major target was 1150, which was hit today. The next target is 1220, which may come tomorrow on Thursday, 23 Feb 2017. The fact that we are currently on second last day of Feb 2017 F&O series also added to the big move as short covering by call sellers was evident in the initial 1 hour.
One thing to note is that Reliance stock has not been able to hold on to any large gains in the last 8 years, while buyers promptly come to buy at lower levels, there is no conviction at higher levels, and today’s sudden 120 point rise may or may not hold. If the trend of last 8 years were to prevail, Reliance will go back to 1050-1100 in the coming weeks, eroding all the gains of today. However, if today’s move is a trend changing move, then it could mean 200-300 points upside in the coming months.