{"id":5858,"date":"2016-04-10T15:55:57","date_gmt":"2016-04-10T15:55:57","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=5858"},"modified":"2016-04-10T15:55:57","modified_gmt":"2016-04-10T15:55:57","slug":"sp-500-earnings-not-as-bleak-as-they-seem-ex-energy-look-for-low-single-digit-earnings-growth-in-q1-16","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=5858","title":{"rendered":"SP 500 Earnings: Not As Bleak as They Seem. Ex-Energy, Look for Low Single Digit Earnings Growth in Q1 &#8217;16"},"content":{"rendered":"<p><em><strong>Thomson Reuters SP 500 Earnings data (by the numbers):<\/strong><\/em><\/p>\n<ul>\n<li>Forward 4-quarter estimate increased this week to $124.78 versus last week&#8217;s (estimated) $123.50.<\/li>\n<li>P.E ratio: 16.4(x)<\/li>\n<li>PEG ratio: 17.3(x) finally positive but not really indicative of core earnings growth.<\/li>\n<li>SP 500 earnings yield: 6.09% versus last week&#8217;s 5.96%. The market seems to struggle anytime the SP 500 earnings yield dips under 6%.<\/li>\n<li>Year-over-year growth rate of forward estimate: +0.95% versus last week&#8217;s -0.35% (estimated)<\/li>\n<\/ul>\n<p>The reason the Thomsom earnings data led off this week&#8217;s post was I wanted readers to note the increase in the &#8220;forward 4-quarter estimate&#8221;: last week I estimated that increase to be $123.50 and in fact it was $1 higher, which is a good sign.<\/p>\n<p>The other point to make is that although the data set is small, Thomson Reuters noted that of the 22 companies that have reported Q1 &#8217;16 earnings to date, the &#8220;beat rates&#8221; (i.e. upside surprises in EPS and revenue) have been substantial, and listed the actual companies. Readers might consider this &#8220;grasping for straws&#8221; so to speak, but the one spreadsheet I keep on &#8220;analyst revisions&#8221; (see spreadsheet linked below) supports the fact that Q1 &#8217;16 earnings will likely be better than the Street is expecting.<\/p>\n<p>First Call EPS estimate revisions:\u00a0<a href=\"https:\/\/fundamentalis.com\/?attachment_id=5861\" rel=\"attachment wp-att-5861\">FC-eps estimate revisions<\/a><\/p>\n<p>If you look at the revisions data, upward EPS revisions remained between 30% &#8211; 40% outside of the peak earnings period in January &#8217;16, until early March, when the upward revisions moved into the mid-40% range. It is an educated guess but with the bottom in Energy and Commodities in mid-February &#8217;16, (which sectors are still less than 10% of the market cap of the SP 500), the analysts started moving numbers up once the rebound in various commodities looked sustainable.<\/p>\n<p>Looking at the asset return tables since 2000, commodities have been at the absolute bottom of the asset class return table for 4 years running, until Q1 &#8217;16.<\/p>\n<p>Look for &#8220;core&#8221; SP 500 earnings growth of low single digits for Q1 &#8217;16, but how the dollar continues to trade and how a lot of the multinational large-caps react to earnings will be more telling.<\/p>\n<p>Thomson is currently expecting the SP 500 earnings to fall -7.6%, while Factset expects SP 500 earnings to decline -9.1%.<\/p>\n<p>One last link: <a href=\"https:\/\/fundamentalis.com\/?p=5865\">yesterday<\/a> it was noted on this blog the importance of Energy (in my opinion) to the SP 500.<\/p>\n<p>This link ( <a href=\"https:\/\/fundamentalis.com\/?attachment_id=5877\" rel=\"attachment wp-att-5877\">FCSP500revgro(qtrly)<\/a>\u00a0quarterly historical earnings and revenue growth by sector for the SP 500. (Q4 &#8217;15&#8217;s results are now final per Thomson and Factset.)<\/p>\n<p>In the black box I&#8217;ve highlighted Energy&#8217;s historical and expected revenue growth as of Thomson&#8217;s and Factset&#8217;s April 8 &#8217;16 reports. Note the Energy revenue growth estimate relative to historical. The issue with forecasting Energy revenue is that Exxon (XOM) and Chevron (CVX), the Energy sector&#8217;s two largest components by far, have &#8220;revenue&#8221; that includes asset sales, which means that Exxon and Chevron can have huge upside surprises or misses based on transactions outside the typical &#8220;revenue&#8221; accounting standard.<\/p>\n<p>Also note how Financial&#8217;s are expected to have their worst quarter of EPS growth in two years.<\/p>\n<p>In my opinion Q1 &#8217;16 will mark the bottom for SP 500 revenue and EPS growth. Part of that forecast is sentiment &#8211; too many on CNBC and Bloomberg toss out &#8220;SP 500 earnings growth&#8221; as a market negative without any consideration of history or trends.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Thomson Reuters SP 500 Earnings data (by the numbers): Forward 4-quarter estimate increased this week to $124.78 versus last week&#8217;s&hellip;<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[171,84,53,91],"tags":[],"class_list":["post-5858","post","type-post","status-publish","format-standard","hentry","category-energy-etfs-xle","category-financial-sector","category-financials","category-weekly-earnings-update"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"post_mailing_queue_ids":[],"_links":{"self":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/5858","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=5858"}],"version-history":[{"count":7,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/5858\/revisions"}],"predecessor-version":[{"id":5878,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/5858\/revisions\/5878"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=5858"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=5858"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=5858"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}