12.5.14: SP 500 Weekly Earnings Update: Energy Masking Decent Earnings Growth for Rest of SP 500

Per ThomsonReuter’s “This Week in Earnings”, the “forward 4-quarter” estimate for the SP 500 fell to $125.36, from last week’s to $126.15.

The Data:

P.E Ratio: 16.5(x)

The PEG: 2.31(x)

The Earnings Yield: 6.04%

The year-over-year growth of the forward estimate fell again to 7.18% from last week’s 7.46%.

Analysis / commentary: The Energy sector continues to be a huge drag on q4 ’14 SP 500 earnings, which is also weighing on the forward estimate for the SP 500. Here is the estimated earnings growth rate for the Energy sector (using Thomson data) for q4 ’14 over the last five weeks. (The 2nd column is the estimated SP 500 earnings growth for the 4th quarter):

12/5/14: -14.7%, +6.2%

11/28/14: -10.5%, +6.6%

11/21/14: -8.6%, +6.6%

11/14/14 -7.9%, +6.6%

11/7/14: -6.9%, +6.6%

Since October 1, the change in the q4 ’14 Energy sector’s growth rate has been remarkable: from +6.6%as of October 1, ¬†to today’s -14.6% or a whopping 2000 basis point¬†decline in 11 weeks.

If we look at estimate changes for full-year 2015, the change in Energy’s expected full-year earnings growth rate has fallen from +6.9% on October 1 ’14 to an estimated 9.4% decline as of December 5th or a roughly 1,600 basis point decline.

The estimated earnings growth rate for the SP 500 for q4 ’14 has fallen from +11.2% as of October 1, to +6.2% today.

The estimated earnings growth for the SP 500 for 2015 has fallen from +12.4% as of October 1, to +9.4% today, December 5th.

What I find puzzling is that in terms of the 10 SP 500 sectors, not one sector is getting the numbers bump, as Energy prices plummet. Not for q4 ’14 or even for full-year 2015.

The Utilities sector is the only sector to show a higher growth rate for q4 ’14 today at +9.9%, versus +7.7% as of October 1.

Conclusion: I do suspect the drag of Energy revisions is masking pretty good earnings growth in the rest of the SP 500, but it isn’t in the numbers in terms of the other sectors yet. This coming week, the two companies we are watching in terms of earnings reports are Costco (COST), and Toll Brothers (TOL). Costco could be a gasoline price drop beneficiary both from their gas centers at the stores which are sensitive to changes in gas prices and simply additional consumer spending power from more discretionary income on the part of the consumer. COST reported solid November comp’s again. Whether the stock has fully discounted all this remains to be seen. Toll Brothers (TOL) preannounced stronger revenues in November and the stock is up 15% since. Housing probably wasn’t wild about today’s November payroll report. Housing in general has been mixed: TOL is a high-end homebuilder so we get a look at the higher end of the market on Wednesday morning, December 10th.




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