2.15.14: SP 500 Earnings Update: Q4 ’13 Very Strong, Not Much Change Otherwise

Per Thomson Reuters, the “forward 4-quarter” EPS estimate for the SP 500 slipped $0.25 this past week to $119.33 versus last week’s $119.58.

The p.e ratio on the forward estimate rose to 15.4(x) and the PEG ratio rose a smidge last week to 2.49(x).

The earnings yield on the SP 500 is 6.49% as of Friday, 2/14/14.

The growth rate of the forward 4-quarter estimate fell last week to 6.19% from the prior week’s 6.38%.

With about 400 of the SP 500 having reported q4 ’13 financial results, the +9.5% year-over-year growth rate for the index is the best growth rate since late 2011.

Excluding Financials, the earnings growth rate is closer to 6%. However there is always “something” to be excluded from each quarter’s earnings which reduces the growth rate: in early 2012, some pundits were removing AAPL’s results from the earnings growth rate and looking at the percentage change ex-APPL. (Long AAPL)

We are keeping an eye on 2014’s full-year SP earnings growth rate, which currently stands at +9.2%, vs. the +10.8% on Jan 1, ’14. The only sector to see higher expected earnings growth for full-year 2014, this week vs. Jan 1 ’14 is Telecom, which has seen expected full-year growth expand from +13.5% to +15.9%.

Q1 ’14’s expected earnings growth is +3.4% currently, versus the +6.5% expected on Jan 1. The q1 ’14 earnings pattern is resuming its previous pattern: the 3.4% will likely continue to get slashed until early April ’14 at which point it will begin to rise. Only Utilities is seeing better forecasted earnings growth as of Friday 2/14/14, versus Jan 1 ’14: 8% vs +1.5%.  With the cuts to q1 ’14 GDP growth this week on the part of some high profile brokers, it is pretty clear a slower quarter of earnings and GDP growth is being built into the stock and bond markets.

Given Utilities sensitivity to interest rates, is the projected positive revisions to q1 ’14 estimates, a tell on interest rates ?

Given that Telecom is now marking-to-market their defined benefit plan pension expense, does that mean the positive Telco revisions are a tell for the stock market and interest rates in 2014 ? (When both stocks and interest rates rise, the funding of defined benefit plans of legacy SP 500 companies can improve markedly and in short order, as we saw in 2013.)

Regarding earnings, there isn’t much to say this week, that hasn’t already been said. In early March we start to see Feb ’14 quarter-end results. That should be interesting.

Q4 ’13 earnings growth at +9.5% is very strong. Still not to our 10% expectation yet, but not too shabby.

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


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