Despite some disappointments by large bellwether companies like General Electric (NYSE:GE), earnings season has gotten off to a decent start in the third quarter. This trend, if it continues, may move the market higher during the next few weeks.
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The percentage of companies raising guidance is at 20.3% so far during third-quarter earnings season (through Oct 16). This is the highest level going back at least 10 years. The net percentage raising guidance is also strong, with only 1.7% of companies lowering guidance, giving a net percentage of 18.6%. This high percentage cuts across all sectors and industries, from technology to solar to consumer.
During the current earnings season, 85% of companies reporting have beaten estimates. This is the highest level going back to 1998.
Blue Sees Green
IBM, Inc. (NYSE:IBM) was among the 20.3% raising guidance when it reported third-quarter earnings. The company moved 2009 earnings guidance to $9.70 per share from the previous guidance of $9.20 per share. IBM was also positive on 2010. "We are well ahead of pace for our 2010 roadmap of $10 to $11 per share," said Samuel J. Palmisano, the CEO.
Solar Power Pays
Despite the drop in commodity prices from the peaks in 2008, alternative energy is still alive and well. Canadian Solar Inc (Nasdaq:CSIQ) said that it expects its shipments for the third quarter to exceed prior guidance. The company now expects to ship 101-103 megawatts, compared to prior guidance of 90-100 megawatts.
Small But Steady
Petsmart Inc. (Nasdaq:PETM) used its annual analyst day to boost its guidance. The company now expects its third-quarter earnings per share to be in a range of 25 to 29 cents, bumping up 2009 earnings to a range of $1.43-1.51.
Abbott Laboratories (NYSE:ABT) raised guidance just a smidgen for 2009, from a range of $3.65 to $3.70 up to $3.70 to $3.72. While this is not a great deal higher, investors cheered the move and sent the shares higher.
The Bottom Line
While all this is good news for investors, one thing to consider is that we are still very early in earnings season, and most companies have still not reported. Also, raising guidance may not necessarily have any deep meanings as it just might indicate that companies and analysts were unduly pessimistic about prospects and the economy and low-balled guidance just so they wouldn't miss it.
Although the market has stumbled the last few days, third-quarter earnings season is actually off to a solid start, as a record number of companies have raised guidance, and/or beaten estimates. Further earnings releases, if they follow this trend, may be the additional fuel the market needs to move even higher. (For additional reading, check out Can Earnings Guidance Accurately Predict The Future?)
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