It is the anniversary of Pearl Harbor today. Remember the WW II (and all) vets as many are leaving us permanently each day.
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Per ThomsonReuter’s “This Week in Earnings”, the “forward 4-quarter” SP 500 earnings estimate rose $0.11 this week to $117.81, versus the $117.70 from last week.
The p.e ratio on the forward estimate is now 15.3(x).
The “earnings yield” is 6.5%.
The growth rate of the forward 4-quarter estimate rose to 7.78%, the highest since Jan 20, 2012. That is a big deal.
However, if ThomsonReuter’s current 2014 SP 500 earnings growth estimate of 11% is to be believed, that forward 4-quarter growth rate must continue to trek higher.
Without getting into a rant or screed, the financial media’s coverage of “SP 500 earnings” still leaves a lot to be desired. There is the “bottom up” estimates versus the “top-down” estimates, quarterly dollar estimates versus the annual dollar estimate for the SP 500, percentage growth estimates versus dollar estimates, all of which allows for some fudging to make the data conform to your outlook.
To be frank, I don’t know that I understand it all. I am trying to reconcile the Thomson data versus the Factset data to see where and how they differ and what accounts for the difference. There is no question that Factset provides more detail on the quarterly data and in their weekly Factset Earnings Insight, but Thomson’s data and format tracks the relative and absolute changes better. Factset’s growth rates for the quarterly detail consistently come in lower than Thomson’s and I’m not sure why.
For example, excluding the JP Morgan (JPM) charge for the litigation expense taken in q3 ’13, and disclosed in the October ’13 earnings release, ThomsonReuters estimates q3 ’13 SP 500 earnings growth at 8.4%, while Factset, excluding the same charge, states that Q3 ’13 SP 500 earnings growth is 6%.
Is that a material difference ? It seems small, but over the span of 4 quarters, that is a notable difference.
495 of the SP 500 have reported q3 ’13 earnings per Thomson. The 8.4% earnings growth rate is 3.8% higher (or almost double) than the 4.6% growth expected on October 1.
Revenue growth of 3.3% for the q3 ’13 is inline with the 3% expected on October 4th, 2013.
The expected Q4 ’14 earnings growth is currently projected at 7.8% – that is pretty decent growth. I’ll bet we see our first +10% earnings growth in q4 ’13, which doesn’t start to be reported until another month from now.
Conclusion: while this seems like a lot of nuanced, navel-gazing around the SP 500 earnings estimates, the fact is SP 500 earnings growth is improving, which bodes well for 2014. I fully expect q4 ’13 to be the best year-over-year earnings growth for the SP 500 in 8 quarters. Can SP 500 earnings growth make the next step from low-to-mid single-digit earnings growth, to high single-digit and low-teens growth ? The trend is improving no question. The earnings and improving economic data, continue to make a case for continued modest p.e expansion for the stock market.
Note the forward 4-quarter growth rate, the q3 ’13 actual growth rate of 8.4% versus the October 1 estimate of 4.6% and the stability around the 2014 growth estimate of 11%. SP 500 earnings are entering another phase of growth, still without revenue growth though. That is the one missing ingredient thus far.
Thanks for reading. More to come this weekend.
Trinity Asset management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager