Standard & Poor’s Howard Silverblatt’s Work on SP 500 Earnings

Howard Silverblatt of Standard & Poors hasn’t been referenced on this earnings blog since last Spring ’15 and for that I am solely to blame.

Howard’s earnings work is very impressive, and very quantitative (which is great), and there is a lot of data.

As a huge Thomson Reuters fan, simply because T/R shows forward quarter growth rates by sector, so a subscriber can see both the relative and absolute changes in growth rates amongst and between sectors.

Howard gives a lot of the raw data, both historically and projected.

sp-500-eps-est (silverblatt)

The attached spreadsheet is Howard’s latest earnings data as of 11/5/15.

A couple of items to note:

1.) Found within lines 23 – 33 the sector operating earnings contribution: note the weights of Technology and Financials. The two sectors that drove the bull market from 1982 – 2000, represent over 40% of the SP 500 bu operating earnings, and anywhere from 35% to 40% of the index by market cap. This is the primary reason why I do NOT think investors are facing another 2001 – 2002 or 2008 type market decline, simply because the sectors with the two largest weights in the SP 500 saw their bear markets from 2000 to 2009.

2.) Note Column E between lines 39 – 49, or the SP 500 sector’s respective PEG ratio’s. Also note the PEG (p.e-to-growth rate metric ) ratio for the SP 500 versus the SP Mid-Cap and SP small-cap. The two largest sector overweight for clients – again, Financials and Technology – look pretty reasonably valued on a PEG basis.

3.) Finally, readers should note lines 94 – 113, or individual stocks earnings impact on the SP 500. Readers can quickly see the importance of Apple (4% market cap weight, 6% earnings weight) and the drag that Energy is having on the SP 500.

4.) Finally, note Column I, lines 127 – 132. Howard notes that SP 500 operating earnings as of 9/30/15 were $103, but the current forward estimate for 12/31/16 is $126.94, which is EXPECTED 23% growth in the next 5 quarters. That is likely a little aggressive, since the Energy sector according to Thomson Reuters, is expected to be flat in terms of 2016 earnings growth. Certainly Energy won’t be the drag on SP 500 earnings in 2016 that it was in 2015.

Analysis / conclusion:  This is excellent earnings detail and dissection by Howard, even though he has toiled in relative anonymity over the years. The latest upstart in the “Earnings dissection” game is Estimize, which i am trying to understand in greater detail. Estimize seems to emphasize earnings and revenue estimates for earnings reports, which is helpful, but in my opinion having 100 investors publish revenue and EPS estimates for companies about to report is somewhat of a waste of time. My business school statistics professor taught me in the mid-1980’s that if you are at a party with 35 – 45 people, the odds increase significantly that two people have the same birthday, so if you are a betting person, and have a pocketful of $20’s and can cover the loss, you can potentially make a lot of money playing the “birthday probability” game. Roger Lowenstein, the iconic Warren Buffett biographer who authored “The Making of An American Capitalist” noted that Mr. Buffett uses that exact same example in demonstrating probabilities in the insurance business.

The point is – (in my opinion) – once there are more than 25 revenue or EPS estimates for a company, does another estimate data point matter all that much, or provide the investor with any more analytical insight ?

At some point (when i find the time), I’d like to discuss the strengths and weaknesses of Thomson Reuters earnings data, Factset, Howard Silverblatt’s Standard & Poor’s work, and Estimize work relative to SP 500 earnings just to give readers some thoughts on where I think value is really added from an earnings perspective, relative to the investment process, and investment decision making.

My friend Jeff Miller, who writes “Weighing The Week Ahead” every week, over at www.dashofinsight.com thinks Factset has “won the earnings game” to quote him directly. Personally, I still like Thomson Reuters since Thomson gives forward 4-quarter data by sector, hence investors can watch the sector growth rates change both on an absolute and relative basis.

The Weekly Earnings Update will be forthcoming Friday night or Saturday morning this week.

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