With 1H Earnings Season right around the corner, we screened for names where consensus moved away from Company guidance in the last 2 months. We screened for names where consensus EPS is down more than 10% in the last 2 months, however guidance is 10% above consensus. For example, Nintendo’s (7974) guidance is 31% above consensus. However, consensus has fallen 17% in the last two months. Other names where consensus is going down and increasing the gap between guidance are FamilyMart (8028), Toppan Printing (7911) and Idemitsu Kosan (5019). The gap between guidance and consensus for FamilyMart is huge Consensus EPS is negative ¥6.3, however guidance is still at ¥232.
On the other side, names where consensus going up and increases the gap between guidance and consensus are Mitsubishi Corp (8058), Toshiba (6502) and Toho Gas (9533). Consensus EPS for Toshiba is up 33% in the last 2 months and now guidance is 29% below consensus. For McDonalds Holding (2702) consensus EPS is ¥18 and up 15% over the last 2 months. However, company guidance is still sitting at ¥8.
Here are the results of the two screens.
EPS Consensus moving up and away from Guidance
EPS Consensus moving down and away from Guidance
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Here are the names that reported yesterday with largest gaps in new Company Guidance vs FY3/17 Consensus Estimates.
- Kitz Corp’s new OP guidance is 36% above FY3/17 consensus OP
- Sojitz’s new OP guidance is 24% above FY3/17 consensus OP
- Doshisha’s new OP guidance is 12% above FY3/17 consensus OP
- LIXIL’s new OP guidance is 40% below FY3/17 consensus OP
- NGK SPARK PLUG’s new OP guidance is 34% below FY3/17 consensus OP
- Wacoal Holdings new OP guidance is 33% below FY3/17 consensus OP
Please take a look and let me know if we can do anything else. We back tested Guidance vs. Consensus and sent out the results yesterday. There is a clear difference in performance in names that come out with good guidance and ones that come out with guidance significantly below consensus….
It is time to start up earnings again and as you know we have been sending out a daily comparing new guidance to FY3/17 consensus estimates. Over Golden Week, we back tested that theory and found that yes, historically Company that issue new Company guidance greater than new FY1 EPS consensus outperform. Companies that come in with new guidance 30% above consensus on average outperformed TOPIX by more than 8% in the most after the announcement. On the other side, Companies that issue new guidance 30% below FY1 consensus underperformed TOPIX by 4% on average.
Now 268 names announced before Golden Week and we ran the same analysis on the names that have reported. The results are very similar. Names that have reported new Guidance 30% more than FY3/17 consensus estimates are up on average 6%. Names that reported new guidance 30% below consensus are on average down 4% relative to TOPIX since they announced numbers.
Below is the historic average returns bucketed into the different groups. Please note that each bucket is not 0 to 10%, 10% to 20% etc…, but greater than 30% and then greater than 20% which also includes all results greater than 30%.
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Here are the names that reported yesterday that gave new OP Guidance significantly lower than FY3/17 OP consensus estimates.
- Ibiden’s (4062) new OP guidance is 56% below new FY1 consensus OP
- Fanuc’s (6954) new OP guidance is 39% below new FY1 consensus OP
- Fancl’s (4921) new OP guidance is 30% below new FY1 consensus OP
- Nintendo’s (7974) new OP guidance is 27% below new FY1 consensus OP
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With Earnings season right upon us, we screened for names where the Street has not made up its mind. More specifically names where the standard deviation across Analyst estimates is greater than 20% of the mean estimate. I found it interesting that out of the 28 names that made the Screen, 36% did not have Company Guidance. For Example, OP consensus estimate for Mitsubishi Corp is 142,769.4 mm yen. However the Std Deviation is 46,258.4 so the OP range is from 189,028 mm to 96,511 mm yen. So it is pretty much anyone’s guess where Mitsubishi will come in at…. JX Holdings is even worse with a OP consensus range from positive 41,485 to negative 168,451 mm yen.
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With Year-end Earnings season nearing, we are about to see all the new Guidance and FY1 forecasts. As we have previously shown, Analysts do not really worry about FY2 until it becomes FY1. So we went out and calculated an EPS number based on the 10-year historical median PE. This gives a kind of baseline to compare with the new FY1 estimates. For example, Sankyo’s (6417) current FY2 EPS forecast ¥145, however the 10Y median PE based EPS is ¥309. As you can see in the chart below, the median PE based EPS is significantly higher than any EPS forecast since 2012. If Sankyo’s PE is to move back in line with historical numbers, either EPS has to go up a lot or Price has to give more.
In the attached files, we have the historical charts with the TOPIX500 universe and then also a screen comparing the PE EPS with current FY2 forecasts with both positive and negative results. For example, TDK’s median PE based EPS is just ¥355 compared to the current FY2 EPS is at ¥1,331. TDK’s current FY2 PE is at 4.5x while its historical median PE is 17x. Maybe the new FY1 estimates will be lower than the current FY2, but there still looks to be good room for expansion.
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With Earnings Season just right around the corner we looked for names where there is a high standard deviation in Analyst Estimates. Basically which Companies have analysts estimates all over the place. We then looked back over the last 4 years to see how those “confused” names performed and what happened to volatility over the three months from March 24rd. Aside from last year when there was only a 6% difference in volatility in quintile 5 (highest standard deviation) vs. quintile 1 (lowest standard deviation), quintile 5 volatility was 30% higher than quintile 1 volatility in the previous 3 years.
As you would expected with higher volatility, comes bigger return but positive and negative. Quintile 5, outperformed Quintile 1, three out of the last four years. However in 2012 it was down 16% relative to only 7% for quintile 1. Below I have attached the returns and volatility for the different quintiles.
For this season we have highlight names that have a large dispersion of Estimates. We screened for names that 1- five or more Analyst cover the Company. 2- Mkt-Cap above ¥100bn and current FY1 EPS divided by Standard Deviation is greater than 30%. For the ones with the largest standard deviation, they look to have had recently significant declines in EPS forecast over the last couple of months. In the attached file we have also included the historical number for each Company.
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Recently the IMF wrote that Japan needs to increase wages, so we thought we would see if that was true. It is. As the only individual-level Salary data is on a parent-only basis we compared Personnel Expenses to the number of Employees and then aggregated up the data. Interestingly on an aggregate basis the number of Employees (including Temp workers) in Companies with market cap above ¥30bn increased 34% in the last 10 years. This is compared to an increase in Personnel Expenses of 36%. So basically companies have added more people but not increased wages / Salary.
However, if we look at the sector level there is some discrepancy. Industrial Services is a great example. Personnel Expenses are basically flat, while the number of Employees has increased 17% in the last 10 years. Transportation is basically the same with only a 2% increase in Expenses and a 20% increase in Employees. Energy Minerals is the worst with a 32% increase in Employees and only a 3% increase in Personnel Expenses. Health Services is really the only sector that had a significant increase in Personnel Expenses and not in Employees.
While we are not advocating huge Personnel Expenses, if your Employees do not have money they cannot buy your products. It is the circle of life…..
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We still have some stragglers who have not announced, but the majority of names are in. With only 40 new names the aggregate numbers have not really change much over last week. YTD aggregate YoY OP growth is at 14% and aggregate Net Income growth is now at 6%. YTD YoY growth at the sector level are also positive. Only 8 out of 31 Sectors have negative YoY growth. The worst is Iron & Steel with OP down 35% YoY and Mining OP is down 27% YoY. On the positive side, OP for the Electric Power and Gas is up 140% YoY and aggregate OP for Pulp & Paper is up 60% YoY
Looking toward the full-year numbers, we have now achieved 78% of full-year aggregate OP guidance and 79% of full-year Net Income guidance. At the sector level, Pharmaceutical sector has already achieved 111% of its full-year guidance, Land Transportation has achieved 91% of its full-year OP guidance and 88% of OP guidance has been achieved in Rubber Products. On the other side, Machinery has only achieved 67% of full-year OP guidance and Wholesale Trade has only achieved 68% of full-year guidance.
The gap between Company guidance and Consensus estimates remained the same. At the aggregate level, Net Income guidance is now 7% below consensus and aggregate OP is now 4% below consensus. OP guidance for Electric Appliances is 5% below consensus. Guidance for both the Rubber Products sector remains 9% below consensus. However, OP guidance for the Pharmaceutical sector is now 6% below consensus, compared to9% below last week.
Looking at what consensus is doing after announcements,OP consensus is up 0.5% since announcements, consensus OP for the Marine Transportation sector dropped 4% last week and Nonferrous Metals consensus estimate fell 2% last week to a total of 5% since announcement. Consensus estimates for Other Financing Business was also reduced by 2%. On an overall absolute basis, OP consensus estimates for the Securities % Commodities is down 8% since the announcements.
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With the market bouncing all over the place, we know that volatility is through the roof. However, we took a closer look to see which Sectors and which particular names have seen the biggest volatility jumps in 2016. At the sector level, Energy Minerals saw an 80% jump in volatility this year compared to last year. Volatility in the Industrial Services and Producer Manufacturing sectors is up 61%. On an absolute basis, Commercial Services has the highest volatility in 2016, followed by Technology Services and then Non-Energy Minerals.
At the Company level, Seiko Epson’s volatility is up 186% compared to last year. Mcdonalds Holding volatility is up 162% and Cookpad’s volatility is up 159% compared to last year. Seiko Epson and McDonalds Holdings are actually only down slightly over the last month. If we just look at the large-cap names. Murata Manufacturing’s volatility is twice that of last year and volatility in Nomura Holdings is up 119%. While both names are down over the last month they are definitely bouncing around a lot. Nippon Steel & Sumitomo is also down 12% and is bouncing around even more.
NTT Docomo and Canon Marketing are the exception. Both made the screen below but are part of the few names with positive returns over the last month.
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