February 22, 2023

As Q4:22 earnings season enters its 2nd month, the Cmind Inc reviewed the performance of our EPS Beats Predictor in Q3 and provide an update of Q4 predictions. This review and update are based on the Financials Sector data as of January 30, 2023.

For 3Q:22, Cmind’s models identified 4 companies in the Financials sector very likely to beat EPS estimates, and 30 companies very likely to miss them. These two cohorts yielded prediction accuracies of 100% and 53% respectively.

Looking forward to 4Q:22 results, we have identified 49 companies in the Financials sector that are expected to beat consensus EPS estimates and 286 expected to miss consensus EPS estimates. Of these, 11 are considered very likely to beat consensus EPS estimates, and 56 are considered very likely to miss.

The five large cap names with highest probability of beating their Q4 consensus EPS are: US Bancorp (USB), Visa (V), MSCI (MSCI), Principal Financial Group (PFG), and Marsh & McLennan (MMC).

The macro-economic environment in 4Q:22 was shaped by a continued increase in interest rates along with a modest stock market rally as investors continued to anticipate a slower pace of rate increases from the Fed. The expectation and rally extended through January 2023. While higher interest rates should help banks expand their net interest margins, investment banking revenues have dropped with the decline in public offerings and capital raising generally. Poor market performance in 2022 also challenged investment managers’ earnings. As the cost of capital has risen, bigger companies with bigger balance sheets have garnered the advantage from smaller cap competitors. This is evident in the above table, which shows that of the 56 “very likely misses” in the Financials sector, none are large cap companies.

For the purposes of this analysis, Cmind defines companies that our algorithms identify with an 80% or higher likelihood of beating estimates as “very likely to beat estimates.” Similarly, companies with a 20% or lower probability of beating estimates are “very likely to miss estimates.” Likewise, those with a 60-80% probability are considered “likely to beat” and 20-40% probability are considered “likely to miss.” Those with 40-60% are classified as marginal, however we still classify each stock as a beat or miss prediction for the sake of accuracy measurements of our predictions below (where 50-60% are marginal beats, and 40-50% are marginal misses).