Wanted to pen a short note to Jeff Miller, who writes the www.dashofinsight.com blog, who has been hospitalized for months with pneumonia in Scottsdale, Arizona. Jeff sold his Newarc Capital money management firm in the last 18 months and relocated to Scottsdale, Arizona from Chicago but continued to write “Weighing A Week Ahead” and publish every week. We hope for a recovery soon and look forward to reading Jeff’s great work on his blog in the months ahead.
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It’s hard not to be a nervous long here, but scan the following table:
Data Source: IBES data by Refinitiv
Readers have been shown this table for one-and-off for the last several weeks, but it’s the best portrayal of SP 500 EPS and revenue trends that can be found right now.
Here is a quick look at what the “expected” SP 500 dollar EPS trend has been for both 2021 and 2022:
Data source: IBES data by Refinitiv
Readers should look at the dollar increases for the SP 500 EPS estimate since 12/31/20: absolute dollar estimate increase is / was $12.76 and the 2021 expected SP 500 EPS growth rate has increased from 23% to 29%, while 2022’s SP 500 EPS estimate has increased a little over $9 per share since 12/31/20, to $204.62 today, while the expected growth rate has slowed from an expected 14% on 12/31/20 to 9% today.
As a 3rd perspective, here’s the “expected” sector growth rates for the SP 500 for 2021:
Data source: IBES data by Refinitiv
Readers should note that the “mega-cap” names within the SP 500 expected to report this week, will have a substantial impact on the Technology (Apple and Microsoft), Consumer Discretionary (Amazon and Tesla), and Communication Services (Facebook and Alphabet) sectors.
If you look at the above table, those sectors are just treading water since 12/31/20, so the pending earnings reports – and guidance- from Microsoft (Tuesday night), Apple (Wed night), Amazon (Thurs night), Facebook (Thurs night), Alphabet (Tues night), will undoubtedly move those expected sector growth rates by next Friday, April 30, 2021. Date of reports is sourced from Briefing.com.
If we include Tesla, which Refinitiv (This Week in Earnings) is indicating reports Monday night after the bell, 21% of the SP 500 market cap reports this week, and from just 6 companies.
SP 500 data by the numbers:
- The forward 4-quarter estimate jumped from $184.05 last week to $185.01 this week. It’s increased from $159.02 since 12/31/20.
- The PE ratio on the forward estimate was 22.6x as of last Friday, and was 23.x on 12/31/20. (Some very slight PE compression for investors.)
- The SP 500 earnings yield rose from 4.40% last week to 4.44% this week. Still low by this blog’s standards. Near the low for the SP 500 around Christmas week, December ’18, when Jay Powell and the Fed reversed course on monetary policy, the SP 500 earnings yield ticked 7%.
- The average “expected” SP 500 EPS growth rate for 2020 and 2021 is now 7% up from 3% on 12/31/20.
Summary / conclusion: 6 companies that comprise 20% – 21% of the SP 500’s market cap reports their Q1 ’21 earnings this week so readers / investors will get a feel for some of the stocks like Amazon, Tesla, etc. that have been range-bound for 6 months and what their 2021 guidance will be. What readers may not understand is that analysts who provide the estimates can get the individual companies and the SP 500 earnings estimates wrong at turning points. This is far from an perfect system, but it’s also one of the best ways to monitor companies since financial models are updated frequently and the earnings services track trends and revisions over long periods of time.
The trends that this blog has been tracking and the weekly growth rate revisions continue to indicate there really isn’t an issue with SP 500 earnings and revenue growth. Per the first spreadsheet linked at the top of this blog, higher revisions week-after-week, is usually a positive for the overall stock market.
Do your own homework and take all market information with a skepticism and a substantial grain of salt.
Things can change in a hurry within the capital markets.
Thanks for reading.