SP 500 Weekly Earnings Update: Expect “Fwd 4-Qtr” Estimate to be Near $129 Next Week

Because yesterday was quarter-end of 9/30/16, and Thomson Reuters cuts off the earnings data as of Thursday night, 9/29/16, the following “By The Numbers” data that will be reported will still be working off the forward 4-quarter estimate of Q3 ’16 through Q2 ’17.

However, If we jump ahead one week and look at the quarterly bottom-up estimate for Q4 ’16 – through Q3 ’17, which will be the new “Forward 4-quarter estimate” as of next week, the “new” roll-forward earnings estimate is $129.50.

This happens every quarter and is what is usually referred to as the “quarterly bump”.

Thomson Reuters data (by the numbers):

  • Forward 4-quarter estimate (as of 9/30/16): $125.06 down from last week’s $125.13
  • P.E ratio: 17.3(x)
  • PEG ratio: -14(x)
  • SP 500 earnings yield: 5.77% versus last week’s 5.78%
  • Year-over-year growth rate of forward estimate: -1%, which is distorted due to the quarter end. Next week it should return to its 2% rate, still pretty low, and lower than expected by now.

Here is another way of looking at this:

  • Q3 ’16 – Q2 ’17 forward 4-quarter estimate: $125.06
  • Q4 ’16 – Q3 ’17 forward 4-quarter estimate: $129.50
  • Q1 ’17 – Q4 ’17: forward 4-quarter estimate: $133.52

This is what is known as the SP 500 “forward earnings curve” and (in English) what it projects is the “forward 4-quarter estimate” 1-quarter in the future, 2 quarter’s in the future, etc.

If we look at just the calendar estimates for the last few years and for 2017:

  • 2017: $133.52 (current estimate)
  • 2016: $117.23 (current estimate)
  • 2015: $117.46 (actual)
  • 2014: $118.78 (actual)

This is another point made on this blog (repeatedly) the last few years: total SP 500 earnings growth has been stagnant now since mid 2014, and that is expected to change with 2017, based primarily in an expected rebound in Energy and Basic Materials earnings. Basically the SP 500’s earnings growth has been carried by Technology (mainly new Tech), Health Care and Consumer Discretionary (mainly Amazon) since crude oil cratered beginning in September ’14.

Conclusion: John Butters of Factset noted in their Earnings Insight this weekend that Q3 ’16 earnings have seen smaller downward pressure, well below historical averages. That is a very nuanced way of saying that Q3 and Q4 ’16 earnings could be stronger-than-expected, and that 2017’s current 14% growth rate isnt unreasonable. This blog wrote about the same subject here, and here.

Think about that – way back on May 17th readers were told that the SP 500’s 2017 EPS estimate was showing signs of stabilizing.

What that forward 4-quarter estimate curve does is provide a rolling data point to better decipher calendar EPS estimates. I do the same calculation for individual companies when doing fundamental analysis on holdings.

Bottom-line: SP 500 earnings growth is showing signs of returning to decent growth, which is what the market COULD be telling us as it consistently finds a bid after sharp corrections.

One key is the Energy sector – more on that to be written, Sunday, October 2nd. Stay tuned and thanks for reading.

 

 

 

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