You might think fourth quarter earnings reports are ugly if you're just looking at the S&P 500 itself. But there's more than a few stocks bucking the trend.
Nine companies in the S&P 500, including materials Albemarle, Delta Air Lines and health care firm Incyte, are set to report 200% or higher adjusted profit growth in the fourth quarter.
That's important growth for investors to pay attention now for two reasons. One, earnings season is kicking off. Secondly, analysts are calling for a particularly bad period for profit. They say S&P 500 companies will report 4.1% lower earnings during the quarter, says FactSet. If that's accurate, it would mark the first time quarter profit has dropped since falling 5.7% in the third quarter of 2020. And it's also a massive drop off from the 3.5% profit growth analysts expected just three months ago.
"Fourth quarter earnings season starts this week, and analysts have been cutting estimates by more than usual," said Nicholas Colas of DataTrek Research.
Ugly Fourth Quarter For S&P 500 Profit
Analysts are preparing investors for the worst. A drop in S&P 500 profit. And that's just the start of it.
Profit forecasts are coming down fast. Analysts' 6.5% slashing to fourth-quarter profit forecasts is the most aggressive since the second quarter of 2020. It's also a much larger cut than average in the past five, 10 and 15 years, says John Butters of FactSet.
"Given continuing concerns in the market about a possible recession, did analysts lower EPS estimates more than normal for S&P 500 companies for the fourth quarter?" Butters said. "The answer is yes."
Analysts, too, are slashing profit forecasts for all S&P 500 sectors except for energy and utilities. Seven of the 11 S&P 500 sectors are expected to post lower profit in the fourth quarter. The hardest hit? S&P 500 materials companies are seen posting 26% lower profit, Butter says.
So, where are the pockets of strength?
S&P 500 Sector S&P 500 Profit Forecasts
| Sector | Expected fourth-quarter profit % ch. |
|---|---|
| Energy | 62.7% |
| Industrials | 38.5% |
| Real estate | 9.8% |
| Utilities | 2.4% |
| Consumer staples | -3.3% |
| S&P 500 | -4.1% |
| Health care | -9.5% |
| Information technology | -9.5% |
| Financials | -12.2% |
| Communications services | -19.0% |
| Consumer discretionary | -20.3% |
| Materials | -26.3% |
Source: FactSet
Looking For S&P 500 Profit Growth
On a sector level, analysts are most bullish on S&P 500 energy sector growth. Analysts think energy companies' profit will rise nearly 63% during the quarter.
That's solid. But it's nowhere near what some of the S&P 500 companies themselves are expected to do. Albemarle's adjusted profit is forecast to soar nearly 660% this quarter. The company is well-positioned to profit the kinds of chemicals likely to see strong demand as the economy goes greener. That includes lithium, bromine and catalysts.
Analysts say the company will make $7.66 a share in the fourth quarter, up from a $1.01 a share profit in the same year-ago period. Investors, though, still haven't bought in with the shares off 4.2% in the past year.
The same can't be said for Incyte, a maker of treatments for a number of disorders including leukemia. Shares bucked the S&P 500's general malaise and rose nearly 9% in the past year. Much of that gain hinges on the company delivering fourth-quarter profit of 0.58 a share, up 483% from the same year ago period.
And some profit jumps are still considered wait-and-see by investors. This is the fourth quarter where analysts finally expect profit to recover at some major airlines. Delta's profit is see rising 507% to $1.34 a share. Investors, though, have heard this story before. They've sent shares down 11% over the past year as they wait for the official sign of a recovery.
So as S&P 500 companies largely report poor quarterly results, know that some firms are doing just fine, thank you.
Profit to Double (Or Better) In Fourth Quarter
Based on analysts' S&P 500 estimates
| Company | Ticker | 1-year stock ch. | Fourth quarter EPS ch. (est.) | Sector |
|---|---|---|---|---|
| Albemarle | -4.2% | 658.7% | Materials | |
| Delta Air Lines | -11.0 | 507.2 | Industrials | |
| Incyte | 8.9 | 482.5 | Health Care | |
| Regency Centers | -17.1 | 447.5 | Real Estate | |
| Marathon Petroleum | 63.5 | 333.9 | Energy | |
| Fox | -19.6 | 293.3 | Communication Services | |
| Alaska Air Group | -17.9 | 284.9 | Industrials | |
| Southwest Airlines | -21.3 | 239.6 | Industrials | |
| EQT | 52.5 | 210.1 | Energy |
Sources: S&P Global Market Intelligence, IBD
Follow Matt Krantz on Twitter @mattkrantz
