Q3 ’19 SP 500 EPS and Revenue Growth Could be the Slowest for 2019

Q3 ’19 financial results will start to be released starting in about three weeks, Let’s take a look at Q3 ’19 EPS and revenue estimates by sector and how they have changed the last 90 days:

Consensus SP 500 EPS growth estimates by sector:

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Source: IBES by Refinitiv

 

Consensus SP 500 revenue growth estimates by sector:

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Source data: IBES by Refinitv from an internal spreadsheet

 

With just 10 days to go in the 3rd quarter of 2019, it is clear that SP 500 EPS growth has seen a bigger decline in 2019 than SP 500 revenue, but 2018 was so distorted by the Tax Cuts & Jobs Act (TCJA) these comparisons are tough to make. With Q4 ’18, the year-over-year SP 500 earnings growth started to slow (Q4 ’18 SP 500 EPS growth was +16.9% in Q4 ’18, vs the 28% in Q3 ’18), which was a 39% deceleration in the rate of earnings growth for the SP 500.

Here are some thoughts on a few SP 500 sectors in terms of the Q3 ’19 revenue estimates:

  • Energy will see its first quarter of negative revenue growth since Q3 ’16 with consensus expecting -4.5% revenue decline in Q3 ’19;
  • Technology of which a big chunk is Apple, is expecting its 3rd straight quarter of y/y negative revenue growth per consensus;
  • In the 2nd table, note the slowing in Industrial revenue growth, which has slowed from high single digits in late 2017, early 2018, to barely positive today. Industrial’s are the one sector where the China tariff “tiff” is clearly showing up, but Industrial’s market cap as a percentage of the SP 500 is still just 9% – 10%.
  • In terms of sector “earnings” growth Financial’s are still looking at the best expected rate of growth of 9% for all of 2019, as of this week, and per the IBES data. And yet the Financial stocks have had a horrid 18 months, and have only found a bid within the last 3 – 4 weeks.
  • In terms of expected “earnings” growth, Energy, Basic Materials and Technology remain significant drags on the SP 500, with these three sectors comprising about 27% – 28% of the SP 500 market cap weight.

Conclusion / summary: when talking SP 500 earnings, Wall Street pundits rarely talk SP 500 revenue, and SP 500 revenue growth is still growing, or expected to grow, a rather respectable mid-single-digits for Q3 ’19. Given how Q4 ’19 sector growth estimates are tracking, we might escape 2019 with low-single-digit earnings growth for the entire year, although we won’t know that with any degree of certainty until Feb ’20.

Q3 ’19 results could be the slowest rates of growth for SP 500 earnings and revenue for 2019.

We’ll talk about the “degree of certainty’ for 2020 estimates of an expected 11% SP 500 earnings growth rate, tomorrow.

Thanks for reading.

 

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