SP 500 Weekly Earnings Update: Big Jump In Forward Estimate – Here is Why

Per Thomson Reuter’s “This Week in Earnings” (by the numbers) as of 7/7/17:

Fwd 4-qtr estimate: $139.21

P.E ratio: 17.5(x)

PEG ratio: 1.82(x)

SP 500 earnings yld: 5.74%, nice increase over last week’s 5.56%

Year-over-year growth rate of fwd est: +9.58%, down from last week’s +9.75%.

As we noted with last week’s Weekly Earnings Update, the “forward earnings curve” was suggesting a $138 – $139 number as the calendar rolled into July ’17 and the numbers didn’t fail us, as the “quarterly bump” for the “forward 4-quarter estimate” rose from $134.73 to $139.21.

The “forward 4-quarter” now includes Q3 ’17 through Q2 ’18 periods.

The SP 500 earnings yield jumped because the SP 500 was unchanged on the week, while that forward estimate continues to increase at a 9% rate.

One data point tracked from Thomson Reuters is the overall “estimated revised higher” vs “estimates revised lower” over the course of a quarter.

Once again, in the 2nd calendar quarter, 2017, the upward revisions outnumbered the downward revisions. What is truly weird though is that – despite the SP 500 being up 8.3% as of June 30 ’17, the first quareter revision were negative once again, meaning that negative revision outnumbered positive revisions, which – for Q1 anyway – has been the case the last 4 – 5 years.

Here is the spreadsheet data:

FC-eps estimate revisions

CNBC’s Steve Leisman did a study of the why the first quarter of every year’s GDP and other economic data seems to be weaker than Q2 (and this trend has been in evidence for a while) and while he reported that there wasn’t anything conclusive that he could pinpoint (and my recollection was that he asked the Commerce Department to look into it) it appears that SP 500 earnings follow that same pattern.

In the blocked areas on the spreadsheet, note the “up revisions vs down revisions” and scroll down the spreadsheet and look at historical Q1 of each year data.

Analysis / Conclusion: John Butters over at Factset has noted for a while that “negative” revisions to forward SP 500 estimates have been below average for some time, or at least John has focused on the 2nd quarter, but I took a look at Q3 and Q4 of 2017 with last week’s Update and the expected growth rates have remained pretty firm for Technology and Financials, which is about 37% of the SP 500 by current market cap.

Despite the weakness in the QQQ’s and some Technology sectors and stocks, the Tech sector estimates look solid.

Per Thomson Reuters I/B/E/S, the current “expected” growth rate for SP 500 earnings for Q2 ’17 is 7.9%. Given the pattern in earnings trends, SP 500 earnings watchers should see at 10% at least when Q2 ’17 is finished. Energy could be a drag again, but it is coming off such easy compares from Q2 ’16, the growth rates will look large, but the dollar earnings will be small. Financial sector earnings could be spotty, but that has been in the stocks since Q1 ’17 earnings.

A more detailed Q2 ’17 SP 500 earnings update will be out Sunday/ 7/9/17.

Thanks for reading.

 

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