8.22.14: SP 500 Weekly Earnings Update: Q2 ’14 Earnings Season is Over, Growth Was Good

According to Thomson Reuter’s This Week in Earnings, the forward 4-quarter EPS estimate for the SP 500 fell $0.25 this week to $126.33, versus last week’s $126.58.

The p.e ratio on the forward estimate given the 1.71% SP 500 rally is now 15.75%.

The PEG ratio rose to 1.70(x) versus last week’s 1.64(x).

The “earnings yield” on the SP 500 fell to 6.35%.

The year-over-year growth of the forward estimate fell for its 4th consecutive week, to 9.25%, down from last week’s 9.40%.

With 486 companies having reported q2 ’14 earnings, for all practical purposes q2 ’14 earnings season is over.

The year-over-year growth rate for actual q2 ’14 earnings was 10.2%, which is pretty healthy growth, the best since late 2011.

q2 ’14 revenue growth of 4.6% was also the best in the last few years.

Here is our excel spreadsheet simply tracking SP 500 revenues by sector: FCSP500revgro(qtrly)

The sectors that caught my eye in terms of revenue growth are Healthcare, Energy (upside surprise) and Basic Materials. Health Care is in large part driven by biotech.

Q3 ’14 earnings growth rates are finally starting to see the typical reductions, with 5 weeks left in the quarter.

Since July 1 ’14, q3 ’14 SP 500 earnings growth has been cut from 11% to 8.3% as of Friday, August 22nd.

Only Healthcare has seen higher revisions for q3 ’14 since July 1, from 10.5% to 11.2%.

Our final comment this week is about Financial’s: because JP Morgan took that huge charge last year in q3 ’13 for legal fees, which resulted in GAAP EPS for JPM of ($0.17) versus core or operating EPS of roughly $1.24. Now with Bank of America poised to take a $16 billion charge for Countrywide mortgage fraud issues, the +20% growth the Financial’s were looking at for q3 ’14, will likely be reduced.

Financials could be setting up for a decent 2014, if only from a clean earnings perspective. We’ve never been big insurance investors, but we do like the big banks, the exchanges, and the asset gatherers like Schwab, etc. (Long JPM, Bank of America and Schwab.)

Thanks for reading. We’ll have more over the weekend.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager

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