The sustainability of record high corporate profit margins may be one of the hottest debates in the stock market.
Analysts are split on whether or not margins will soon fall to historical averages.
But one trend is emerging from the Q1 earnings announcements we’ve seen so far: margins are fatter than expected.
“Of the 22 S&P 500 companies that have already reported, 73% beat their earnings expectations by an average of 1.7%,” wrote UBS’s Jonathan Golub in a note to clients yesterday. “Upside is entirely due to margins not revenues. We expect these trends to continue.“
According to Golub’s data, only 50 per cent of companies have beat revenue expectations. The discrepancy between revenue and earnings surprises can explained by Wall Street’s underestimation of profit margins.
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