The latest U.S. earnings season has been another resounding success and the trend should continue throughout 2010, says Vincent Delisle, Scotia Capital Markets strategist.
"Cautious analysts and bullish CEOs appear to us as the perfect cocktail for elevated "beat ratios" in coming quarters, he said in a note to clients.
First quarter earnings estimates for 2010 have been falling in recent weeks, said Mr. Delisle, with seven of 10 S&P 500 sectors facing negative profit revisions. The three sectors that have been saved from revisions are discretionary, technology and financials.
The strategist said the lower Q1 earnings expectations likely reflect sovereign debt issues in Europe and monetary tightening in China.
But while analysts are feeling cautious, he noted that company guidance is increasing at the fastest pace since 2006, with positive guidance running ahead of negative forecasts since the second quarter of 2009.
"Rebounding top-line growth and margin expansion in coming quarters should translate in outsized gains for earnings," he wrote.
"Rising U.S. capacity utilization should contribute to further profit margin expansion and, coupled with stronger industrial production, S&P 500 EPS could well surprise on the upside in coming quarters."
80% of S&P 500 members having reported fourth quarter 2009 earnings through last Friday. 73% of companies have beaten earnings expectations and 53% have booked revenue "beats."
In Canada, the numbers are less impressive. With less than one-third of S&P/TSX composite members having reported Q4 earnings, the index has recorded an earnings "beat ratio" of just 53%.