SP 500 Earnings: How is Q4 ’17 and 2018 Shaping Up ?

While big banks kick off the Q3 ’17 earnings season this week, readers can get a leg up by looking at Q4 ’17 estimates and seeing which sectors have seen the highest earnings revisions since July 1, ’17.

Per Thomson Reuters I/B/E/S, here are the numbers:

  • Cons Disc: +10.1% vs 11.8% as of July 1 ’17
  • Cons Spls: +9.2% vs +8.7% as of July 1 ’17 (weaker dollar has to be aiding better growth)
  • Energy: +91.3% vs +118% as of July 1 ’17
  • Fincl’s: +15.8% vs +16.5% as of July 1 ’17 ( down some last 13 weeks, but not much)
  • Health Care: +6.8% vs +7.5% as of July 1 ’17
  • Industrials: +11.9% vs 15.7% as of July 1 ’17
  • Basic Mat: +23.5% vs +20.3% as of July 1 ’17 (note the upward revisions)
  • Real estate: -0.2% vs +0.5% as of July 1 ’17
  • Technology: +12.3% vs +10.4% as of July 1 ’17 (note upward revisions)
  • Telecom: +0.5% vs +0.9% as of July 1 ’17
  • Utilities: +3.7% vs +3.8% as of July 1 ’17
  • SP 500: +12.3% vs. +13.1% as of July 1 ’17

Remember, Technology, Financials and Health Care comprise about 53% of the SP 500 by market cap.

Telco, Ute’s, Basic Materials and Real estate combined, sum to about 12% of the SP 500 by market cap.

For Q4 ’17 estimates, the sharpest upward revisions occurred in the Technology, Basic Materials and the Consumer Staples sectors. Worries over production issues around the Apple iPhone 8 seem to have not impacted Q4 ’17 estimates for the Tech sector (at least yet anyway.)

Remember too these are estimates and can change with the release of Q3 ’17 earnings starting this week.

However, given the pattern of revisions today, the SP 500 earnings story continues to be a good one.

Too early to look at full-year 2018 estimates ? 

Here are the changes in full-year 2018 sector estimates since July 1 ’17:

  • Cons Disc: +10.2% vs 11.9% as of July 1 ’17
  • Cons Spls: +8.2% vs 8.0% as of July  1’17
  • Energy: +35.5% vs +43.1% as of July 1 ’17
  • Fincl’s: +14.1% vs +12.5% as of July 1 ’17
  • Hlth Care: +8.5% vs +9.0% as of July 1 ’17
  • Industrial’s: +10.6% vs +12.2% as of July 1 ’17
  • Basic Mat: +17.9% vs +12.7% as of July 1 ’17
  • Real Estate: +7.3% vs +7.9% as of July 1 ’17
  • Technology: +12.1% vs +11.5% as of July 1 ’17
  • Telco: +1.7% vs +2.0% as of July 1 ’17
  • Utilities: +5% vs +6.3%
  • SP 500: +11.4% vs +11.8% as of July 1 ’17

Note the upward strength already in Consumer Staples, Financials, Basic Materials and Technology for next year, however to temper enthusiasm, the numbers will be more realistic after 2018 guidance starts being articulated with the release of Q4 ’17 earnings, and sector estimates get adjusted.

In May, 2016, it was written on this blog that 2017 SP 500 EPS growth estimates were tracking towards it first “double-digit” year of earnings growth since 2011, and that turned out to be a good forecast.

2018 is looking the same – double-digit earnings growth is expected again next year – after the rebound in Energy and Basic Materials prices, but also the Financial sector is looking at double-digit EPS growth next year (again these are estimates).

If FInancial sector earnings are up 15% in 2018 that will be the best year of earnings growth for the sector since pre-2008.

Also remember, when looking at the above tables, when we see upward revisions to sector growth estimates pre-release, it portends positively for that sector since the typical pattern is downward revisions into earnings from initially what are typically inflated growth estimates.

The pattern is very important here and it’s been obvious for years.

Thanks for reading.

 

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