9.26.14: SP 500 Earnings Update: Finally, A Jump In the Forward Estimate Growth Rate

By this time next week, we will have the September Jobs report in hand, (scheduled for release at 7:30 am central time, on October 3rd, 2014) and we will see a nice jump in the “forward 4-quarter” EPS estimate for the SP 500.

Given that this week’s estimate is $125.67, my guess for next week’s “forward 4-quarter” estimate is $129.50 to $130.00.

Each quarter, as we roll into the new quarter, as we will this week on October 1 ’14, we roll forward 1-quarter on our “forward 4-quarter” estimate.

This is one reason I think there is an upward bias to stocks in general and to the SP 500: the emphasis on growth and “return” is the silent catalyst that keeps the profit engine moving forward. The P.E the market assigns to that growth is always the $64,000 question. It is always the great unknown.

This week, the last full week of the quarter, the “forward 4-quarter” estimate fell slightly to $125.67, from last week’s $125.79.

The p.e ratio on the forward estimate is 15.78(x) and the PEG ratio as of Friday, September 26th, is 1.76(x).

The earnings yield after this week’s decline of 1.37% in the SP 500 is 6.34%, up from last week’s 6.25%.

More importantly after an 8-week slide in the year-over-year (y/y) forward 4-quarter growth rate, the growth rate jumped this week to 8.95% from last week’s 8.56%. Basically the growth rate fell every week from August 1st forward, which isn’t abnormal since the growth rate jumped sharply in July ’14 during the heart of earnings season.

Here is a quick detail of the change each of the past three month’s of the y/y forward 4-quarter growth rate:

July ’14: from 5.40% on July 4 to 9.58% on August 1:

Aug ’14: from 9.58% on Aug 1 to 9.18% on Aug 29:

Sept ’14: from 9.15% on Sept 5 to 8.95% on Sept 26;

Analysis / commentary: this could be navel-gazing at its finest but we watch closely the y/y change in the forward estimate growth rate. So far the end of September’s growth rate is higher than early July’s.

q3 ’14 earnings start in 2 weeks, and the current estimate per Thomson Reuters’s, “This Week in Earnings” is 6.6% growth for q3 ’14. Expect that to come in close to 10% again by the time we reach the end of December ’14.

Q3 ’14 expected SP 500 earnings growth started the quarter at 11%. The Bank of America charge cost BAC and the SP 500 a bit in q3 ’14. We detailed that in our latest blog post on Financials here.

Bespoke had an interesting line in one of their reports this week: Financials and Utilities are the only sectors where positive revisions outnumber negative revisions.

One final interesting stat: q2 ’14 revenue growth is now +4.7%. That is up from +4.6% last week. Worries over the dollar might be overblown. Prior to Nike’s report, the worries over the quarter were currency related. (Long NKE, one low cost basis position.)

I don’t think anything has changed on the earnings front: expect q3 ’14 earnings to come in high single-digits at least.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


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