6.7.14: SP 500 Weekly Earnings Update: Bottoms-Up 2014 SP 500 Earnings Growth Estimate is 9.1%

Per Thomson Reuter’s, “This Week in Earnings” the forward 4-quarter EPS estimate for the SP 500 fell $0.12 last week to $122.94.

The p.e ratio on the forward estimate is now 15.9(x).

The PEG ratio using the forward estimate is still 1.85(x), well below the 2.5(x) range in 2013.

The earnings yield on the SP 500 is 6.31%, and continues to slide (naturally), as the SP 500 rises faster than earnings growth.

Once again, the year-over-year growth rate of the forward estimate rose to 8.59% from last week’s 8.54%, for the seventh consecutive weekly increase.

Over the last 7 weeks, that year-over-year growth rate has increased from 6.75% to 8.59%.

Not too bad. Ironically, the last 7 weeks were retail and energy and industrial names reporting within the SP 500.

Analysis / Commentary: From a bigger picture perspective, the following table shows the last 7 years earnings growth for the SP 500:

2016 – est 4%
2015 – est 8%
2014 – est 7%
2013 – actual 6%
2012 – actual 6%
2011 – actual 15%
2010 – actual 40.26%
2009 – actual -7.13%
2008 – actual -23.09%
2007 – actual -3.47%

Readers can quickly see the 2007 – 2009 period, but readers can also quickly see the stability the last few years around the actual 6% – 7% growth rates, and the expected growth rates over the next three years. The 2014 – 2016 numbers are using “top-down” earnings estimates: if we calculate expected 2014 earnings growth using the current bottoms-up EPS estimate of $119.65, (versus the top-down estimate of $117.32), then 2014 expected growth is 9.1% – big difference.

The important difference between top-down and bottoms-up is (importantly) analytical rigor: while top-down is often Strategist estimates, the bottoms-up estimate is comprised or a function of sector and company estimates, combined into one number.

If SP 500 earnings do grow 9% – 10% this year, and the p.e multiple on the SP 500 expands to 2(x) the growth rate or 18(x) – 20(x), there is more upside ahead to the market.

Our thought in late 2013, early 2014 was that we could see 10% earnings growth this year for the SP 500, but I’ve been flip-flopping worse than a politician. We’ll recap all of this in a separate article.

I still think we get another 5% – 10% market correction before October 1, which will have nothing to do with earnings.

That is our math (story) and I’m sticking to it…

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.