By the Numbers:
The forward 4-quarter estimate this was $124.28 versus last week’s $124.90 and $125.60 of 5 weeks ago.
The P.E ratio on the forward estimate is 16.7(x) vs 16.8(x) last week.
The PEG ratio is still negative, although using this data from last week, the PEG is closer to 2.5(x) – 3(x) the Ex-Energy and Ex-Apple growth rates.
The SP 500 earnings yield was 5.98% this week, versus 5.94% last week, reflecting the roughly 1.25% decline in the SP 500 for the trading week.
The y/y growth in the forward estimate was -1.48% this week, a slight sequential improvement in the -1.50% from last week. The growth rate in the forward estimate is still negative, and still worrisome.
Analysis / conclusion: With the vast majority of the SP 500 having reported Q2 ’15 earnings, the EPS “beat” rate (actual EPS vs. the mean consensus estimate) is pretty solid at 71%, well above the average of 63% per Thomson Reuters. The revenue beat rate is far more disappointing at 49% versus the long-term average of 60% and, also per Thomson, the current beat rate of 49% is even below the last 4-quarter average of 56%.
However, if we look at the data, the majority of the “revenue” problem (ranked from top to bottom) is coming from three sectors:
- Health Care: 67% above, 33% below, w 51 of the 56 SP 500 Health Care companies reporting
- Financials: 61% above, 39% below w 85 of the 88 SP 500 Financial companies reporting
- Technology: 58% above, 42% below w 55 of the 67 SP 500 Technology companies reporting
- Consumer Disc: 54% above, 46%, below w 61 of the 84 SP 500 Consumer Discretionary companies reporting
- Energy: 48% above, 52% below w 40 of the 40 SP 500 Energy components having reported already
- Consumer Spls: 36% above, 64% below, w 28 of the 37 SP 500 Consumer Staples components having reported
- Industrial’s: 30% above, 70% below w 63 of the 66 SP 500 Industrial components have reported already
- Basic Materials: 30% above, 70% below, w 27 of the 28 SP 500 Basic Materials companies have reported already
- Utilities: 26% above, 74% below, w 27 of the 29 SP 500 Utility components having reported already
- Telecom: 20% above, 80% below w 5 of the 5 SP 500 Telecom companies having reported
- SP 500: 49% above, 51% below w 442 of the SP 500 companies having reported as of August 7, 2015
A couple things surprised me about this list:
Energy, I thought would be far worse in terms of ranking is just slightly below 50%, which could be telling us that Energy expectations have really gotten too low;
Consumer Staples is worse than Energy, which tells me that perhaps the dollar is a bigger influence than we thought
Industrials (!), wow, that 30% beat rate was surprising. I’m wondering if the sector is setting up for a longer-term opportunity for patient investors, with a portfolio hedge using the UUP. This requires more homework, but the Industrial components are cash-flow rich, and reasonably-valued, at least the companies I follow fundamentally.
Telco, Utilities and Basic Materials is about 6% – 7% of the SP 500 by market cap. I would say the majority of the pain or drag of SP 500 revenue is coming from Industrial’s which is 10% – 11% of the SP 500 by market cap.
Of the Industrial’s, GE is one of my favorites given the company is finally shedding GE Capital, getting good prices for the assets, and is returning to its true industrial roots. GE is still trading more than 50% below its September, 2000 peak of $60 per share. Every time the stock trades near $25.50, I start to pick at it for clients. A 3.6% dividend yield today, with a lot of apathy and little enthusiasm baked into the stock price, sounds good to me. Just be patient with the stock – more portfolio re-engineering is ahead.