First-quarter earnings are mixed so far, and IBD's screen of Rising Profit Estimates finds only a few stocks that are still in attractive setups.
While the percentage of S&P 500 companies beating profit estimates is above the five-year average, they are topping estimates by smaller margins than average. As of Friday, 79% had topped estimates, slightly above the five-year average of 77%, according to FactSet.
In whole, S&P 500 earnings are 8.1% above estimates, which is below the five-year average of 8.9%.
The S&P 500 index also is reporting single-digit earnings growth for the first time since the fourth quarter of 2020, FactSet added. "The lower earnings growth rate for Q1 2022 relative to recent quarters can be attributed to both a difficult comparison to unusually high earnings growth in Q1 2021 and continuing macroeconomic headwinds," said Senior Earnings Analyst John Butters.
Profit Estimates Vs. Results In Q1
More than 20% of the S&P 500 companies have reported first-quarter earnings, so there's much more to go.
Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, says cost pressures remain an issue. But companies have been successful at passing on higher expenses to their customers. Strong demand makes this easier, which means profit margins are holding up and beating expectations.
"Perhaps most encouraging, bottom-up estimates for the full-year and second-quarter have remained flat during reporting season," Marcelli said. "In other words, companies are generally maintaining their forward guidance." UBS forecasts S&P 500 earnings growth of 10% this year.
Merck, Rexford, Flex Profit Estimates Climb
Merck is one of the companies in IBD's Stock Screener with rising earnings estimates. The drugmaker is forming a cup-with-handle base with an 89.58 buy point.
The relative strength line is already at new highs. While those are favorable factors, keep in mind that the stock market correction makes any stock purchase extra risky.
Profit estimates for Merck in the near term look bullish. Analysts expect Merck to grow EPS 37% to $1.83 a share when it announces results Thursday morning. The consensus estimate jumped after Merck reported Q4 earnings Feb. 3 and picked up a bit more the past couple of weeks, according to FactSet.
Rexford Chart Analysis
Rexford Industrial Realty is in buy range from a cup-with-handle entry of 78.44 to 82.36, according to MarketSmith. FactSet shows a consensus estimate of funds from operations (FFO) for the current quarter at 23 cents per share, up 54%. That estimate jumped after the industrial property owner reported Q1 results on April 19, the same day the stock broke out.
Flex LNG is finding support at the 10-week moving average in its first pullback since breaking out of a cup with handle on March 24.
The transporter of liquefied natural gas reports Q1 earnings on May 11. Analysts expect earnings to rise 3% to $5.50 a share. While profit estimates were trimmed for Q1, analysts have increased their full-year estimates.
