Corporate earnings update – June 29th, 2012

Given that the last day of June fell over the weekend, we won’t get the July “forward 4-quarter” estimate for the S&P 500 until next Friday, July 6th. However, if the pattern remains similar to previous quarterly increases,¬†we would expect the forward 4-quarter estimate to increase to$110 per share (or better) when we see the detail next Friday.

As of June 29th, the forward 4-quarter estimate for the S&P 500 was $107.25, resulting in the S&P 500 trading at 12(x) earnings as of Friday’s close.

Many are now worried about guidance and preannouncements for the 2nd quarter when q2 ’12 earnings start with Alcoa’s release on July 9th.

Here is how q1 ’12 eps growth by sector fell out for the S&P 500 (data from ThomsonReuters):

Industrials +17.4%

Financials +13.6%

Technology +14.8%

Consumer Discr +10.1%

Consumer Staples +5.1%

HealthCare + 3.8%

Energy +1.2%

Telecom -2.8%

Utilities -8.2%

S&P 500 +8.1%

What is ironic is that telecom and utilities were the two best performing sectors in the S&P 500 in q2 ’12, while financials and technology were the two worst. (Note the earnings growth relative to q2 ’12 sector performance. )

While Bespoke now has q2 ’12 earnings growth as decidedly negative, our ThomsonReuters data indicates that q2 ’12 earnings growth is still expected at +5.8% however Bank of America is thought to be disproportionally contributing to q2 ’12, so ex Bank of America and ex Financials, q2 ’12 earnings growth is expected at 0.06% and -0.7% respectively or flat on year-over-year. Once earnings start getting released, there tends to be a minor positive bias to estimates.

Preannouncements by Ford and Nike last week didnt help. The negative-to-positive preannouncement ratio is decidedly negative. (We’ll be out with a comment on Ford later this week.)

To conclude pessimism is rampant (I heard from a CNBC anchor this afternoon, that “at best, the S&P 500 will be breakeven in the 2nd half of year”), and no one likes the market. Year-over-year earnings growth is expecetd to be subdued for q2 and q3 ’12, and expectations for earnings are very low.

Long FDX, F and NKE (smaller position)


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