11.21.14: SP 500 Weekly Earnings Update: Q3 ’14 Earnings Were Strong; Q4 ’14 Will Also Be Very Healthy (Despite Energy)

Per Thomson Reuters, the “forward 4-quarter” estimate this week fell slightly to $126.48 from last week’s $126.64.

The metrics as of 11/21/14’s close:

SP 500: 2,063.50

P.E ratio: 16.3(x)

PEG ratio: 2.15(x)

SP 500 Earnings Yield: 6.13% down from last week’s 6.21%, thanks to 1.16% rally in the SP 500 this week.

Forward 4-qtr growth rate: the y/y change in the forward 4-qtr growth rate ticked up this past week to 7.58% from last week’s 7.54%.

Analysis / commentary: Thomson is now putting the SP 500’s q3 ’14 earnings growth rate at +11.2% (486 of SP 500 have reported q3 ’14) if the Bank of America charge is excluded. JP Morgan’s year-over-year easier compare is in q3 ’14 so the +11% isn’t a pure number, but that is still one of the better quarters of operating earnings growth for the benchmark in some time. (I’ll try and get an adjusted operating number for q3 ’14 this week.)

As was noted last week, current q4 ’14 SP 500 earnings growth expectations is expecting 7% growth as of 11/21/14, which given the drop in Energy and Basic Materials, is still a very strong quarter expected for q4 ’14, and we still have another 6 weeks of likely downward revisions ahead of us. My guess is – by early January ’15 – the y/y growth estimate for q4 ’14 will be around 5% – 5.5%, and then we’ll see the upward revisions after q4 ’14 earnings start getting reported around January 10, ’14.

 Full-year 2014 SP 500 Earnings Growth Still Looking Pretty Strong:

With basically all of the SP 500 having reported q3 ’14 earnings, here is the change in full-year 2014 expected earnings growth by sector since July 1 ’14 (ranked highest to lowest):

Health Care: +16%, +11.9%; ( no surprise here)

Telecom: +15.3%, +15.9%

Technology: +10.9%, +10.4% (Apple’s calendar q3 ’14 was strong – really helped tech.)

Industrials: +10%, +8.8%

Utilities: +8.1%, +7.0%

SP 500: +8.1%, +9%

Basic Mat: +7.2%, +8.6%

Cons Disc: +5.9%, +8.6%

Financials: +4.2%, +6.6% (So may charges, hard to get a feel for operating earnings)

Energy: +4.2%, +9.4%

Cons Spls: +4.1%, +5.9%

One of the reasons I go through this exercise of analyzing the sectors from different timeframes is to simply see what jumps out; despite the drop in crude oil prices, Energy is still not the sector with the slowest expected earnings growth for full year 2014. That title is held by Consumer Staples. I would not have expected that.

Since July 1 ’14, Health Care, Technology, Industrials, and Utilities have seen upward revisions to full-year 2014 expected earnings growth.

There look to be some sector positives for 2015 as well, which we will be out with early next week.

Thanks for reading,

Trinity Asset Management, Inc. by:

Brian Gilmartin, CFA

Portfolio manager


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