DEUTSCHE BANK: Here Are 4 Reasons Why Q4 Earnings Will Beat Expecations

Binky Chadha Deutsche BankBinky Chadha


It’s no secret that Deutsche Bank strategist Binky Chadha is the most bullish strategist on Wall Street right now.  And he’s been the most bullish strategist on Wall Street for a while.But his bullishness isn’t without reason.

Going into Q4 earnings season, Chadha lays out four reasons why he thinks earnings will beat expectations:

In our view, consensus has cut Q4 EPS ($23.8) too far and we believe that Q4 should come in flat vs. Q3 ($25.1), with 2011 EPS hitting our forecast of $99. Why earnings downgrades will abate and Q4 will beat:

(i) Consensus expects a 5% qoq EPS decline in a seasonally strong Q4, the first seasonally adjusted decline since Q4 08. EPS typically rises 4% from Q3 to Q4;

(ii) Positive EPS revisions should follow positive macro data surprises, as has been the case historically. Our US MAPI [DB’s macro data surprise index] turned positive in Oct and Europe MAPI turned positive recently; EPS estimates should rise on higher economic data/forecasts;

(iii) Analysts cut EPS much more than guidance was lowered. Firms guided EPS 2.5% lower than consensus yet Q4 estimates were cut by a much greater 9%;

(iv) Current consensus implies an extreme drop in foreign profits given solid US growth and buybacks. With the positive US drivers, we estimate that consensus is implying a 30% qoq drop in foreign earnings, steeper even than Q4 2008 (-15%).

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