SP 500 Earnings: Forward 4-Qtr Growth Rate at 9.87% – 5 year high

There is actually a ton of good data to write about this week, but the content will be doled out in a few separate posts.

With WalMart’s earnings report due this coming week, Q2 ’17 earnings come to an unofficial end, and Q2 ’17 was quite strong, BUT, much of it was due to an easy compare with 2016.

Q2 ’17 SP 500 earnings grew 12% year-over-year per Thomson Reuter’s “This Week in Earnings” and if Energy is excluded, SP 500 earnings grew 9.3%.

That is decent growth. A year ago, the “forward 4-quarter estimate” was expecting +1.47% growth and the forward 4-quarter estimate was $125.88.

If the “4-quarter trailing” EPS is summed using Thomson’s bottom up estimates (Q2 ’17 back to Q3 ’16), the actual 4-quarter trailing earnings are $125.96.

The point being that the “forward 4-quarter estimate” – in this case was pretty accurate. But, more data needs to be examined, and the results reviewed over a longer timeframe.

However, we want to focus on “forward SP earnings” since that is where the rubber meets the road so to speak: this week the “forward 4-quarter year-over-year growth rate” hit 9.87%, the highest print since 2010’s 20% – 25%, and again 2010’s percentage growth rate was elevated due to the weak numbers off the 2009 US economy.

The fact is forward estimates are one of the better (and few) leading indicators we have, so don’t ignore what the market is telling you.

Analysis / conclusion: Most bloggers who quote earnings sources use Factset’s data, and John Butters and his staff are quite good (John is a former Thomson employee and authored the “This Week in Earnings” report for years). I like Thomson since I’ve been using the data for nearly 17 years, and  when the data sets have been compared (Thomson vs Factset) both tell similar stories, particularly for revenue growth. There are some differences over the years in sector earnings growth estimates, but it is usually “actual” vs forward estimates, which usually has more to do with one-time charges, and what is considered operating and what isn’t.

As was written last week, on this blog, the “forward 4-quarter” estimate continues to tell a good story.

My buddy Jeff Miller threw up a post this week, that was genuinely surprising, and I didn’t hesitate to throw a little good-natured shade his way. My own opinion is that the Aaron Brown post was not what we are seeing in the SP 500 today in terms of revisions, and a Factset article by John Butters – also published this week – supports that premise.

As this blog has written on at least a half dozen occasions over the last 5 – 10 years, “less negative” forward earnings revisions is an unambiguous positive for the stock market.

The other aspect to Aaron Brown’s article that Jeff awarded his coveted “Silver Bullet” Award to, was his comment about share repurchases.

While some companies have been very irresponsible about share repo’s, and the prices they repurchased stock at, the fact is returning more capital to shareholders – like a dividend – is usually a way to reward shareholders for being just that – long-term shareholders.

“Beating the earnings game” is a lame excuse to attribute to companies for repurchasing stock. It smacks of the “class warfare” argument, and is quite tiresome.

However, conflicting opinions are what makes markets.

My own opinion is that the “forward 4-quarter” SP 500 earnings estimate is telling a very good story.

Thanks for reading.


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