Earnings Surprise and Signal Report 2Q10 Vol 2

07/30/10 -

• Very early results show companies posting strong positive revenue and earnings surprise.  With only 368 R2000 companies in our universe having reported since 6/30, early results point to a good quarter, with the median company posting +2% revenue surprise and +9% earnings surprise.
• Only 3 sectors posting positive median relative price impact.  The median Staples, Industrials and Health Care stocks are outperforming the index 2 days after reporting.  Staples is posting the worst median revenue surprise (-80 bps) but the best median earnings surprise (+21%).  we note only 10 Staples companies have reported.
• Financials represent greatest portion of early reporters.  Of the 368 reporting companies that meet our criteria (i.e., having both revenue and EPS estimates), nearly 40% are from the Financials sector.
• Earnings misses being penalized more than beats are being rewarded.   Investors may already be pricing in positive surprise as companies missing on earnings are down -2.6% relative to the index 2 days after reporting, compared to the +1.3% relative performance for those beating on earnings.
• Y/Y growth is strong and appears to be accelerating.  +19.2% median y/y earnings growth is more than twice the +8.3% posting in 1Q10.   Both the strong surprise and y/y growth figures can expect to come down as lower quality companies tend to report later in the earnings season.  Tech is posting the best median revenue and earnings y/y growth, +31% and +35%, respectively, though the strong showing is largely expected when considering Tech's relative weak price impact.
• Stocks reporting between 7/20 and 7/26 posting the largest, positive price impact: LNCE, INFN, PVTB, NXTM, ATHN, AEIS, UCTT, NTGR, CRBC
• Stocks reporting between 7/20 and 7/26 posting the largest, negative price impact: GAP, SWI, PNFP, MTSN, SANM, GLCH, IIIN, HBHC, VLTR