11.15.14: SP 500 Weekly Earnings Update: q4 ’14 SP 500 Expected Earnings Growth Starts to Stabilize

Per Thomson Reuters’ “This Week in Earnings” the forward 4-quarter earnings estimate for the SP 500 fell this week to $126.64 from last week’s $126.77.

P.e ratio: 16(x)

PEG ratio: 2.14(x)

Earnings yield: 6.21%

Year-over-year (y/y) growth rate of the forward estimate: +7.54%, versus last week’s +7.63% or a 9 basis point drop.

Analysis / commentary: the one metric at caught my eye this morning as I read through the weekend earnings research at Saturday breakfast, is that the expected earnings growth for q4 ’14 for the SP 500 as a whole was 7.3% as of Friday’s “This Week in Earnings” report, versus 7.6% last week, which tells me that the Energy and Basic Materials negative earnings revisions could be coming to an end, at least for now.

With 450 of the SP 500 having reported q3 ’14 earnings, the results have actually been pretty positive: actual earnings growth for q3 ’14 per Thomson Reuters is +9.8%, but that includes what is widely-regarded as the last good quarters of Energy and Basic Material’s earnings growth, which was +10.4% for Energy, and +20.7% for Basic Materials (compared to the -7.9% and -0.3% for q4 ’14, respectively.)

Here is how the 10 sectors of the SP 500 expected q4 ’14 earnings growth have changed in the last week:

Consumer Disc: +8.8%, +9.6% (80 basis point decline)

Consumer Spls: +0.9%, +1.4% ( 50 basis point decline)

Energy: -7.9%, -6.9% (100 basis point decline)

Financl’s: +8.6%, +8.6% (no change, and somewhat puzzling given the charges that are circulating regarding the forex scandal);

Hlth Care: +18.1%, +17.9% ( another weekly increase)

Industrials: +11.2%, +11.2% (no change, should be beneficiary of falling crude prices)

Basic Materials: -0.3%, +0.1% (pretty dramatic change from q3 ’14’s +20% growth)

Technology: +8.5%, +8.6%

Telco: +19.6, +19.9%

Utilities: +9.8%, +9.3% (another increase)

SP 500: +7.3%, +7.6% (30 basis point decline)

My own opinion is that we are starting to see estimates stabilize for q4 ’14 after the Energy and Basic Materials shock.

2015’s expected SP 500 earnings growth fell from +10.3 to +10.2% in the last week, not really worth mentioning, but we keep track of the changes in expected earnings growth across multiple timeframes.

It is just my opinion, but SP 500 earnings continue to be a bright spot: despite ugly revisions for Energy and Basic Mat for the 4th quarter, consensus estimates are still looking for +7.3% growth in q4 ’14. That will surely come down before q4 ’14 earnings start to get reported in January, ’15, but we should end up with a +5% growth rate just as earnings start. That is a plus, particularly with the pressure on the Energy sector.

We saw a lot of high profile commentators go negative on q3 ’14 earnings starting early, September ’14 and we didn’t as you can see here.

SP 500 earnings growth is still very much a positive aspect to this market. Don’t bail because of earnings.




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