Weekly Earnings Update: Expect Strong Q4 ’16 SP 500 Earnings; Likely up 9%-10%

Here is a longer look at the annual SP 500 EPS prints since 2014:

  • 2018: $148.59: or +12% y/y growth (est. per Thomson Reuters I/B/E/S)
  • 2017: $132.65 or +12% expected y/y growth (est. per Thomson Reuters I/B/E/S)
  • 2016: $118.01 or 0% y/y growth (est. with Q4 ’16 left to report)
  • 2015: $117.46 or -1% y/y growth (actual per Thomson Reuters I/B/E/S)
  • 2014: $118.78 or +8.3% y/y growth (actual per Thomson Reuters I/B/E/S)

As someone who studies this data regularly and rigorously, the confidence level for expected 2017 SP 500 EPS growth is a higher than for 2018. If readers wonder why, don’t forget these previous blog posts here, and here, to note how the 2017 expected EPS growth rate evolved over 2016.

Readers will see another 30 – 35 earnings reports this coming week, from Tuesday through Friday, January 20th. My own interest in terms of client holdings will lie with IBM (IBM), Charles Schwab (SCHW), Goldman Sachs (GS),  with Schlumberger (SLB) and GE (GE) Friday morning. (long all, except SLB, but owned indirectly through XLE, IYE, OIH).

The peak period of Q4 ’16 earnings reports is January 23rd through February 2nd, 2017. That is when readers will see the majority of the SP 500 report their quarterly results.

Curious as to which sectors look best heading into Q4 ’16 earnings ? Read here and here.

Apple will dominate Technology as it usually does. Expectations are lukewarm around the iPhone giant pre-earnings release, ( a positive in my opinion) which is scheduled for the week after next. Apple is 10.8% of the market cap of the QQQ’s, while Microsoft is roughly 8% of the Q’s and is second in the ETF, in terms of weighting. (Long Apple and Microsoft in most accounts with MSFT being a larger weight in client accounts than Apple.)

Thomson Reuters I/B/E/S data by the numbers: 

  • Forward 4-quarter estimate: $132.75 up from last week’s $132.73, a positive sign since sequential changes tend to be negative
  • P.E ratio: 17.13(x)
  • PEG ratio: 2.99(x) and finally returning to a normal range
  • SP 500 earnings yield: 5.84%, up sequentially from last week’s 5.83%
  • Year-over-year growth of the forward estimate: 5.73% and readers need to go all the way back to 4th quarter ’14 for an equivalent print

Analysis / conclusion: Energy is no longer a drag on SP 500 overall earnings and revenue growth, so for Q4 ’16, we’ll see the first “true” SP 500 earnings growth since probably mid-2014. Second, the revisions to the forward and the lack of negative revisions to the expected 4th Quarter earnings, means Q4 ’16 will likely be very strong when all is said and done, probably over 10%. Finally, even though the larger-than-expected increases in economic data since the Presidential election have been around “sentiment” measures, i.e. small business optimism, consumer confidence, etc. it will be the 2017 guidance that will matter most when we hear the Q4 ’16 results.

The annual EPS estimates at the top of today’s blog show that the overall SP 500 earnings growth has been flat for three years now, and is poised to materially break out to the upside (earnings growth, that is).

Here is our 2017 prediction for the SP 500, and nothing has changed since, although President-elect Trump’s priorities and the potential for a “cross-border” tax make me nervous. There is a lot of optimism built into the Congressional and Republican agenda for 2017, and President-elect Trump has shown he can be unpredictable.

 

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