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%).