Attached is a spreadsheet we put together from Thomson Reuters data, which includes the “history” or trend in the SP 500 operating EPS estimate for each year, as supplied by Street analysts or Strategists. (See below for a better definition.)
Readers should enjoy this, and frankly after putting it together, it leaves me feeling “bullish on America” to steal the old Merrill Lynch slogan from the late 1970’s and early 1980’s.
Here are a couple of points worth mentioning:
1.) Note the 2012 actual EPS and in particular the change between March and April ’13. That is the “truing up” of the top-down estimate, which is published in the tables and Thomson Reuters data, with the bottoms-ups estimate. The point is, if you’ve been following my earlier writings on the SP 500 2013 final EPS estimate, when we get to April 1, I expect to see that “bump” in the final, actual 2013 EPS for 2013, and the actual number should come in around $110. (Why that matters you’ll see shortly).
2.) The difference between top-down and bottoms-up estimates per Greg Harrison, who writes the weekly “This Week in Earnings” for Thomson Reuters is the following:
The top-down numbers are generally done by economists or strategists and are typically the opinion of one individual analyst who came up with the estimate. The bottom-up estimates are the compilation of all the equity analysts individual company estimates.
Instead of paraphrasing, I just copied Greg’s explanation directly from the email.
3.) Note how 2014 already is showing better growth than 2013. I log the estimate linearly, (month to month), but also chart year-over-year growth since that is what drives the p.e multiple (to a great degree);
So what is the point of all this ?
I do think 2013’s final EPS number will be $110 or a little higher, which then sets our base or denominator for 2014;
I do think we could get to 10% EPS growth in 2014, particularly if the back half of 2014 is strong.
Here was our January 6 ’14 article detailing how the SP 500 could do 20% this year.
I cant definitively promise readers we will see 20% this year. I do think the year will be back-end loaded given the elections, with a 2013 final EPS and 10% earnings growth in 2014, and modest p.e expansion would still get us to 20%.
The trend in the above estimates, particularly for 2014, (note the steady increase) is giving me more and more confidence this is “doable”.
Thanks for reading.
Trinity Asset Management, Inc. by:
Brian Gilmartin, CFA
Portfolio manager