SP 500 Earnings – Will the Benchmark’s Forward Estimates Bottom w/ Q2 ’19 Results ?

Well the additional tariffs – if they happen – will impact the forward estimates, but expectations coming into the start of the 2nd quarter earnings in two weeks are really as low as they have been in years. The headlines will be interesting Sunday night, June 30th, around the China trade talks emanating from Osaka. President Trump will no doubt be tweeting madly based on discussions with Xi.

  • Q1 ’19 earnings were expected to decline 2% as of April 1, but actual growth was 1.6%, which is consistent with the “upside surprise” around quarterly SP 500 earnings.
  • Q2 ’19 earnings are currently expected to rise 0.3%, so by late September the “actual” Q2 ’19 results should be +3% – 5%.
  • Q3 ’19 earnings are currently expected to rise 0.8%, vs the 2.7% estimate on April 1;

Here is additional color on 2019’s expected SP 500 earnings growth: from early October ’18 to late March ’19, the expected 2019 growth rate fell from 10% to 3%, but since early April ’19, the expected 2019 SP 500 growth rate for earnings has been constant at 3% expected growth, In other words, for the last 15 weeks, the expected 2019 EPS growth rate of 3% is “unchanged”.

More importantly – although writing about will likely earn some derision for sure – 2020’s “expected” SP 500 growth rate for earnings has been steady at 12% since February 1 ’19.

SP 500 data (by the numbers):

  • Fwd 4q est: $170.63 vs last week’s $170.74
  • PE ratio: 17.2x
  • PEG ratio: 4.25x
  • SP 500 earnings yield: 5.81% vs 5.79%
  • Year-over-year growth of fwd est: +3.94% vs last week’s 4.15%

Summary / conclusion: This is being written mid-day on Friday, June 28th, 2019, so the assumption in the above data is that the SP 500 closes near 2,940 and the 10-year Treasury yield closes the week around 2.00%.

The forward 4-quarter growth rate for SP 500 earnings has now fallen under 4% to 3.94% for the first time since September ’16 or just before the last Presidential election. Is there a LOT of bad news now built into forward earnings thanks to China tariffs and trade, worries over a recession, worries about Iran, etc ?

The 2020 “expected” growth rate hasnt changed much since early in 2019 so while readers may discount that and think it’s suspect analysis, we are just 6 months out from 2020 and there is a forward looking component to the earnings data.

What I wouldn’t want to hear is big negative pre-announcements starting Monday July 1, ’19.

My own opinion and take it with a healthy dose of skepticism and cynicism, is that 2019’s expected earnings growth for the SP 500 is bottoming, and likely won’t get much worse. 2020 looks healthy too.

Thanks for reading.

 

 

 

 

2 Responses to “SP 500 Earnings – Will the Benchmark’s Forward Estimates Bottom w/ Q2 ’19 Results ?”

  1. mike mickelson

    If the PEG ratio is P/E divided by Earnings growth +
    dividend yield. then how did you arrive at a PEG of 4.25 with a P/E of 17.2 and per the WSJ of Jun. 29-30 a div. yield of 1.99%?

    Reply
    • Brian Gilmartin

      PEG (PE-to-growth rate) is PE divided by the expected growth rate: 17x SP 500 PE divided by 4% 4-qtr trailing SP 500 EPS growth, equals 4.25x.

      Using 4-qtr trailing may not be the right denominator either – using the expected 2019 EPS growth rate of 3% would leave us with a PEG of 5.74x.

      If we used a blended forward SP 500 EPS growth rate average of 3% +12% / 2% = 7.5% the PEG would be a more reasonable 2.29x.

      The dividend yield has nothing to do with a simple PEG calculation. 2018’s PEG was under 1x all year because tax reform sharply boosted SP 500 earnings growth and the market went nowhere for most of the year.

      Take is for what it is the PE and PEG calculations: simple math that tell you nothing about the cyclicality of the underlying business.

      Reply

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