4.5.14: SP 500 Earnings Update: Forward 4-Quarter Estimate Increases to $122.77

With the roll into the new quarter, the “forward 4-quarter” estimate (Per Thomson Reuters) increased $4.12 this past week to $122.77 from last week’s $118.65.

This bump or increase is normal or expected, although $4.12 is the largest sequential increase I’ve seen in some time.

The p.e ratio on the forward estimate given Friday’s SP 500 close at 1,865.09 is 15(x).

The PEG ratio is now 2.33(x), in-line with PEG’s of the last 12 – 18 months.

The “earnings yield” is now 6.58%.

Most importantly, the y/y growth of the forward estimate jumped to 6.59%, above last week’s 6.09% and stopping a 3-week slide. The y/y growth rate of the forward estimate has now been stuck between 6% – 6.5% since January 1, 2014, after hovering between 7% – 8% for November and December, 2013.

Noticing the $4.12 sequential dollar increase in the SP 500 EPS the first week of April, here is the sequential increase in the forward 4-quarter estimate since early, 2013:

q2 ’14: to $122.77 or $4.12 increase / 3.4% increase

q1 ’14 to $120.77 or a $3.83 increase / 3.2% increase

q4 ’13 to $119.04 or a $3.58 increase / 3% increase

q3 ’13 to $116.67 or a $3.53 increase / 3% increase

q2 ’13 to $115.25 or a $3.41 increase / 2.96% increase

q1 ’13 to $113.88 or a $5.05 increase / 4.4% increase

Being a data geek of the highest order, I need to delve into the data further, work back further and see what it tells me, but as the reader can quickly see, it looks like earnings growth is starting to accelerate, still modestly, but it certainly isn’t falling apart.

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Q4 ’13 earnings for the SP 500 grew 9.9% y/y, the highest rate of growth since 2011. Revenues in q4 ’13 grew 1% y/y, with the Financial sector revenues falling 10% y/y thanks to the Health Insurance and Industrial REIT’s.

In q1 ’14, the y/y growth estimate for SP 500 earnings is just 1.1%, versus expected revenue growth of 2.7% %. We expect that when the majority of q1 ’14 earnings are reported by mid-May, 2014, actual earnings growth will be closer to 3% – 5%.

Here is how q1 ’14 earnings estimates have changed since January 1 for the 10 SP 500 sectors: (first column is the sector, the 2nd column is the expected sector earnings growth as of April 4, the third column is the expected growth as of January 1)

Cons Disc: +5.8%, +14.5% (estimates have been hit hard. SBUX doesn’t look good technically. Still think the selling is overdone for the sector and within retail.)

Cons Spls: +3.3%, +9.3%

Energy: -5.3%, -0.4%

Fincl’s: -2.7%, +5.9% (We are still seeing litigation charges come through for big banks and Financials. I do think ’14 will be a tougher year for sector)

Hlth Care: +3.7%, +5.8% ( We are staying with large-cap pharma like PFE and MRK.)

Indus: +0.2%, +5% (Surprised at the estimate slashing)

Basic Mat: -0.6%, +9.8% (Commodity stocks have been some of best year-to-date performers)

Technology: +2.4%, +7%

Telco: +12.8%, +14.2%

Utilities: +7.7%, +1.5% (the only sector to see higher growth revisions through q1 ’14)

The bloodletting in biotech in terms of the correction in the stocks is emblematic of the difference between the market and earnings. For full-year 2014, Health care has actually seen earnings growth revised higher, but the sector, led by biotech’s has gotten pounded.

Alcoa (AA), JP Morgan (JPM) and Wells Fargo, (WFC), report Tuesday after the bell, and Friday morning respectively.

We should see revisions for the Financial sector after these two big banks report when we look at the data next week.

I do think that q1 ’14 earnings estimates are too low, and we should see the typical upward drift through the quarter as earnings are released.

We will have our eye on changes for full-year 2014 as the 1st quarter numbers are released.

Thanks for reading and stopping by.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

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