2.8.14: SP 500 Earnings: Q4 ’13 Earnings Growth Strongest since q3 ’11

Per ThomsonReuter’s This Week in Earnings, the forward 4-quarter EPS estimate for the SP 500, slid $0.22 last week to $119.58 from $119.80.

The p.e ratio on the forward estimate ended this week at 15(x).

The PEG ratio jumped to 2.36(x) from last week’s 2.28(x). Id prefer to see it under 2(x).

The “earnings yield” on the SP 500 ended last week at 6.65%, remaining at the low end of its 2-year range.

Finally, the year-over-year growth of the forward estimate as of Friday, 2/7/14 was 6.38%. My own opinion is that the growth rate needs to move above 8% or the December ’13 highs to drive another period of p.e expansion for the SP 500.

Q4 ’13 earnings – strongest growth in 10 quarters

Per Thomson Reuters, the q4 ’13 SP earnings y/y growth rate is now 9.5%, just shy of our 10% expectation. Revenues are actually coming in better than expected, too, which is something we haven’t seen in a while.

Roughly 65% of the SP 500 have reported q4 ’13 results.

Because of the -11% drag on revenue growth thanks to Prudential within the Financials sector, total revenue growth for the SP 500 is just 1%. If Pru and Financials are excluded from the index (per Factset), then SP 500 revenue growth would improve to 2.3%.

How strong is q4 ’13 earnings growth ?

q4 ’13: +9.5% (current actual)

q3 ’13: +6% (operating EPS was +8.5% excluding JPM’s litigation charge)

q2 ’13: +4.9%

q1 ’13: +5.4%

q4 ’12: +6.3%

q3 ’12: +0.1%

q2 ’12: +8.4%

q1 ’12:+8.1%

q4 ’11: +9.2%

q3 ’11: +18%

Source: Thomson Reuters TWIE

With 137 SP 500 companies scheduled to report, we should see our 10% SP 500 earnings growth forecast. We get a lot of retail reports over the next 3 weeks.

 2014 Sector Earnings Growth Estimates:

There isn’t anything that really stands out in the data yet, in terms of changes to full-year sector earnings growth estimates. Id rather not “reach” for conclusions, until I’m confident that the data is telling me something.

The SP 500 full year EPS growth rate has declined from 10.8% on January 1, 2014, to 9.4% as of February 7th, 2014.

Every sector’s expected 2014 earnings growth rate is lower today than on January 1, 2014, with the exception of Health Care, which has remained stable at 8.2% over the first 5 weeks of 2014.

What is interesting is that – per Factset – Health Care’s expected 2014 revenue growth started 2014 at +6.4% and is now +7.3%.

We are long AMGN, PFE, MRK, ISRG and JNJ. I prefer stable, consistent earnings growers that are less volatile for the majority of our clients.

The Energy estimates that looked to be rising for 2014 6 weeks ago, have now faded. The upward revisions to Energy are not sticking out like they once were. (We remain underweight Energy, with the sole position being HAL. The Oil Services group might be good for a trade. BHI looks particularly good technically.)

What I find ironic is that in the 3rd quarter, 2011, the SP 500 grew earnings 18% per Thomson, but the SP 500 index declined 15% in q3 ’11 (approximately). As readers can see, earnings are an important element to the Rubik’s Cube (to steal a phrase from Rick Santelli) that is investing, trading and portfolio management. Earnings are to the market what speed is to the race: as the old saying goes, the fastest person doesn’t always win, the race, but it sure is a good way to bet.

We think studying earnings data is a good way to tilt the odds in your favor in a very complex game.

Thanks for reading. More to come this weekend.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio Manager



Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.