Earnings Trends Before the Start of Q2 ’15 Releases

Last weekend, the updated earnings numbers from Thomson Reuters, “This Week in Earnings” were not published:

Forward 4-quarter estimate: $125.63, and up from the prior week’s $121.78. The quarterly bump in the forward estimate came in just as expected.

P.E ratio: 16.5(x)

PEG ratio: still negative, ex-Energy, under 2(x)

Earnings yield: 6.05%, the first time that the SP 500 earnings yield has been over 6% since late January ’15.

Y/Y growth rate of forward estimate: -3.94%

Analysis / conclusion: FCSP500revgro(qtrly). This attached Excel spreadsheet shows the recent earnings and revenue trends by sector for the SP 500. It is still a work-in-progress but readers can see the the heavy drag that Energy is still exerting on the overall index, thanks to the dramatic decline in earnings growth for one sector. Here is a couple of other thoughts I’ll leave readers with in terms of some of the trends:

1.) Health Care is still king, with Gilead and Amgen being the heaviest two weights in the sector representing 2.4% of the sector, after Johnson & Johnson (JNJ) and Pfizer’s weight of 2.9%. Healthcare earnings growth for q1 ’15 was expected to be +7.2% the first week of April ’15 and ended up at +17.6%. Healthcare earnings are expected to increase just +4.1% per the current estimates on the above spreadsheet. Let’s keep an eye on how that changes through the quarter.

2.) Financial’s are slated to have another decent quarter of +14% – 15% earnings growth. Financials to me represent a solid, lower-risk, lower-reward sector. Note the Financial’s revenue growth the last 3 – 4 years.(Long the big banks.)

3.) Basic Materials starting the 2nd quarter at +4.9% isn’t too bad. Unfortunately, Basic Mat is just 3% of the SP 500. (Long AA, X)

4.) Technology is still heavily dependent on Apple. This is Apple’s fiscal Q3 ’15 and a lot of it could be Apple Watch. Expect an uneventful quarter from Apple. (Long AAPL)

5.) Industrials: GE is still the heaviest earnings weight in the sector at 0.8%, but the airlines have dragged down numbers for the last 3 months. GE, Boeing and MMM are the top 3 stocks in terms of earnings weight within Industrials at 0.8%, 0.5% and 0.5% respectively. (Long GE, BA)

6.) Energy – I do think Energy remains “lower for longer” but i want to see how q2 ’16 earnings growth estimates for the sector unfolds.

Financials and Technology are still over 40% of the SP 500 by market cap, and given the very reasonable valuations in both sectors, it is tough to see how the SP 500 could be in for a longer-term bear market that we saw in the 2000 – 2009 decade. but the fact is this slow growth could go on for quite a lot longer.

Greece is a headline distraction, and like Ukraine, hopefully it will fade shortly.

Expect another solid quarter for Q2 ’15 financial results.


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