In the first quarter of 2024, a report has emerged showing that Street Earnings, based on Zacks Earnings, are overstating profits for the majority of S&P 500 companies. However, there are 122 companies within the S&P 500 whose Street Earnings for the trailing twelve months (TTM) through the first quarter of 2024 are lower than their true profits, known as Core Earnings. This research is based on the latest audited financial data, specifically the calendar first quarter 2024 10-Q in most cases. As of May 16, 2024, the quarter-over-quarter analysis is based on the change since the previous quarter.
These companies with understated Street Earnings are actually more profitable than what investors realize, and in many cases, they are undervalued as well. The report reveals the magnitude of the understated Street Earnings in the S&P 500, explains why Street Earnings (along with GAAP earnings) are flawed, and highlights five S&P 500 companies with understated Street Earnings that have Attractive-or-better Stock Ratings.
There are 122 companies in the S&P 500, representing 24% of the total, whose Street Earnings are lower than their Core Earnings in the TTM through the first quarter of 2024. For these companies, the average understatement of Street Earnings compared to Core Earnings is around 16% per company. This accounts for 29% of the total market capitalization of the S&P 500 as of May 16, 2024, a slight decrease from the previous quarter.
Furthermore, there are 41 companies within the S&P 500 where Street Earnings are understated by more than 10% compared to Core Earnings, making up 6% of the market capitalization as of May 16, 2024. This analysis is based on a thorough examination of the financial statements and footnotes of approximately 3,000 10-Ks and 10-Qs filed with the SEC after earnings season, indicating a comprehensive overview of the financial landscape.
The report also identifies the five S&P 500 stocks with the most understated Street Earnings in the TTM through the first quarter of 2024. These stocks have Attractive-or-better Stock Ratings and have the highest degree of Street Distortion as a percentage of Street Earnings per share. Investors who solely rely on Street Earnings might be missing out on the true profitability of these companies, highlighting the importance of thorough analysis and research in investment decisions.
Overall, the report sheds light on the discrepancy between Street Earnings and Core Earnings for companies within the S&P 500, revealing opportunities for investors to uncover hidden value and potential investment opportunities in companies that are actually more profitable than perceived. By understanding the flaws in traditional earnings calculations and conducting in-depth research, investors can make informed decisions and potentially capitalize on undervalued assets within the market.
