Nobody Had a Clue How Good a Quarter the Faangs Were Putting Up

(Bloomberg) -- Wall Street analysts, often pilloried but almost always able to get within a penny of what companies earn in a quarter, have turned all but futile when it comes to the world’s most-scrutinized corporations.

The tech behemoths, including Apple Inc. and known widely as Faangs, have crushed analysts’ sales estimates by 8.4% for the latest calendar quarter, the best showing on record, data compiled by Bloomberg show. And it’s not just the megacaps that are smashing expectations. From banks to drugmakers and energy producers, almost every industry sector is doing better, with widespread profit beats seeing little precedent.

Predicting businesses during the pandemic era remains an arduous exercise. After spending months calculating the economic damage, analysts have turned their focus to the positive scenarios as the economy slowly reopens. Yet the difficulty persists, with the pace of the recovery uncertain and supply chain disruptions lingering, so any forecasts are often little more than guesses.

“Where does this thing peak out? I have no clue. Companies don’t have a clue,” Michael Holland, chairman at Holland & Co., said in a Bloomberg Television interview. “How about the shortage of semiconductors? Who knows if it’s going to be two quarters from now or two years from now.”

For a sense of just how far analyst estimates have been off, consider this: Prior to the Covid-19 pandemic, the average surprise for the five Faang stocks was 1.2% dating back to 2012. The 16% surprise late Wednesday for Apple’s most recent quarterly sales was the biggest on record for any of the stocks during that period. Amazon.com Inc. is scheduled to report results after market Thursday.

Goldman Sachs Group Inc. analyst Rod Hall upgraded Apple shares to neutral from sell, admitting his original view that the iPhone cycle would disappoint in the midst of Covid-19 was “clearly wrong.”

“Not only has Apple done better than we expected on iPhone during the cycle, but Mac and iPad have also materially outperformed our forecasts,” Hall wrote in a note to clients. “With this kind of demand backlog and a very difficult re-opening forecasting environment, we are moving to the sidelines here.”

Hall is not alone being blindsided by the murky picture. Half way into the reporting season, S&P 500 profits have come in 13% above expectations, data compiled Bloomberg Intelligence show. While that’s down from over 20% seen at the start of the pandemic chaos, it’s four times the margin seen during the previous five years.

Almost 90% of S&P 500 companies that announced results have beaten analyst forecasts, poised for the best showing since Bloomberg began compiling the data since 1993.

These outsize positive surprises reflect a cautious stance among company executives, whose guidance usually shapes analyst views, according to Paul Zemsky, chief investment officer of multi-asset strategies and solutions at Voya Financial.

While vaccines are rolled out in the developed world, coronavirus cases are spiking in countries like India and Brazil. And with so much policy support in place, even business managers can have a tough time to identify which aspects of growth and earnings are organic and which are driven by government stimulus.

“Given how much economic growth depends on policy being right -- and it has been right up to now -- I can see why companies are hesitant to give too much guidance,” Zemsky said. “Companies are reluctant to guide higher because there’s still a tremendous amount of uncertainty.”

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