By the numbers:
Forward 4-quarter SP 500 earnings estimate: $119.96, versus $119.38 from last week, the first sequential increase in the SP 500’s forward estimate since early January ’15
P.E ratio: 17(x)
PEG ratio: 28(x)
SP 500 earnings yield: 5.82%
Year-over-year (y/y) growth in the forward estimate: 0.62%, versus last week’s 0.82%
Analysis / commentary: Despite the Sandisk (SNDK) warning this week, the forward 4-quarter estimate actually moved higher sequentially, the first time that has happened (outside of the quarterly roll, which always happens the first week of the quarter) since October 10, 2014, and that forward estimate was actually flat with the prior week, rather than an increase. To see an actual sequential increase in the forward estimate, we have to roll all the way back to July 18, 2014 when the forward 4-quarter estimate was $127.07, versus the prior week’s $126.75.
The point of this line of thinking being that if we actually start to see some sequential increases in the forward estimate, it probably means some of the downward pressure from the Energy sector earnings revisions, and the US dollar is beginning to abate.
Where I was looking for $130 in bottom-up EPS in calendar 2015 for the SP 500, with a current bottom-up estimate of $120.87, I do suspect we will end the year closer to $124 – $125 in bottom-up earnings per share when we get to March 31, 2016.
The final 2014 bottom-up EPS, which we will get Wednesday morning from Thomson, looks like it will be roughly $118.75, close to the $120 I expected for 2014. Here is my late November ’13 blog post on our math around a $120 – $121 SP 500 EPS expectation for 2014.
The big home run in 2014 was not owning any Energy exposure and the big whiff having a 5% – 10% weighting in Basic Materials names.
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One interesting metric from the TWIE report dated March 27th, 2015: Full-year 2015 Industrial earnings growth for 2015 has improved through the quarter.
Here is the change in SP 500 earnings growth estimates by sector as of March 27th, 2015(first column) from January 1, 2015 (second column):
Consumer Disc: +11.3%, +16.9%
Consumer Spls: +2.1%, +6.6%
Energy: -56.1%, -23.3%
Financials: +16.1%, +17.8%
Hlth Care: +7.7%, +10.5%
Industrials: +9.8%, +9.7%
Basic Mat: +2.4%, +14.7%
Technology: +6.2%, +11.3%
Telco: +4.8%, +4.9%
Ute’s: +0.9%, +2.5%
SP 500: +1.8%, +8.1%
Summary / Conclusion: A lot depends on Energy, but I suspect full-year 2015 bottom-up EPS for the SP 500 will finish in the mid $120’s, higher than the low-ball $120 estimate today. I actually think the Energy sector earnings growth and earnings estimates might be too onerous, but I need to do some more work on that.
The relative strength to the full-year 2015 Industrial earnings growth is a pleasant surprise particularly given the US dollar. The 10% sector growth is very strong relative to the SP 500’s overall expected growth in mid-single-digits.
I also need to flush that sector out as well. Transports have not traded well and were folded into the Industrial’s years ago. Obviously the railroads have been hurt by less crude oil loadings on railcars, as we saw a negative pre-announcement this week from Kansas City Southern (KSU), but that should be offset by the airlines benefiting from fuel cost declines.
Given the above table, Industrial’s were the only sector to see an expected 2015 earnings growth increase through the first quarter.
Food for thought…
The only company that I follow fundamentally that reports this week is Micron Technology (MU). With Sandisk’s news this week, and then Intel’s news late Friday, possibly acquiring Altera, the sector is now getting a lot of attention.