×

Here's one vital indicator to watch ahead of earnings

Ahead of a handful of big quarterly earnings reports due out next week, analysts' revisions could be one of the most important gauges to track.

"The revisions that come in just a few days before the actual report date are some of the ones that give you the most direction about what's really going to happen on that earnings report date," Erin Gibbs, S&P Global portfolio manager, said Tuesday on CNBC's "Trading Nation."

Analysts give earnings and revenue guidance for the stocks they cover, and sometimes revise their top- and bottom-line figures shortly ahead of quarterly reports.

Specifically, Gibbs is following the activity for Facebook and Google parent company Alphabet. Both technology giants report quarterly earnings next week, and the names will give the market a sense of what lies ahead for the information technology sector overall, Gibbs said.

"For Facebook, their earnings expectations have been very stable. In general, Facebook is extremely well-managed. They tend to know how to work with Wall Street analysts. So we're not expecting a big change, but if there is one, that's important," she said.

Facebook is set to report next Wednesday after the market closes, and analysts overall are expecting earnings per share of $1.12, per FactSet estimates.

Alphabet, meanwhile, has seen downward revisions in the past months and even months prior, Gibbs pointed out. If the market sees more downward revisions that would be concerning, she said. Alphabet is scheduled to report next Monday after the market closes, and analysts are forecasting earnings of $8.25 per share, per FactSet.

Overall, Gibbs is forecasting "very healthy growth" for the second quarter's earnings reports across the S&P 500. Growth will likely come in at around 10 percent, she said.

"Honestly, beating by less than 2 percent is really a miss these days. So we're looking for that continued positive surprise," she added.

Just 8.5 percent of S&P 500 companies have reported quarterly earnings so far this cycle, and have broadly shown nearly 7 percent blended growth, according to FactSet estimates.

Disclosure: Erin Gibbs does not personally have any positions in FB. Gibbs does not personally own GOOGL, but she manages portfolios in which GOOGL is a component.

Videos

Trades to Watch

Trader Bios

About

Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

Read more

Connect