{"id":9386,"date":"2019-10-12T14:49:08","date_gmt":"2019-10-12T14:49:08","guid":{"rendered":"https:\/\/fundamentalis.com\/?p=9386"},"modified":"2019-10-12T14:49:08","modified_gmt":"2019-10-12T14:49:08","slug":"sp-500-earnings-update-need-that-forward-growth-rate-to-start-climbing","status":"publish","type":"post","link":"https:\/\/fundamentalis.com\/?p=9386","title":{"rendered":"SP 500 Earnings Update: Need That &#8220;Forward Growth Rate&#8221; to Start Climbing"},"content":{"rendered":"<p>As was covered <a href=\"https:\/\/fundamentalis.com\/?p=9366\">yesterday in a broader blog post<\/a> on sentiment around Q3 &#8217;19 SP 500 earnings before the first full week of reporting begins, expectations around Q3 &#8217;19 SP 500 are quite low &#8211; which per Bespoke &#8211; is a good sign for a positive return for the SP 500 for the 4th quarter.<\/p>\n<p>That being said, as the reader will see with the following metrics, the one metric I&#8217;d like to see start to rise is the growth rate of the &#8220;forward 4-qtr estimate&#8221;.<\/p>\n<p>When the &#8220;forward 4-qtr&#8221; growth rate starts to expand over the 52-week prior number, should be when the PE on the SP 500 starts to expand.<\/p>\n<p><em><strong>SP 500 data (by the numbers)<\/strong><\/em> courtesy of IBES by Refinitiv<\/p>\n<ul>\n<li><em><strong>Fwd 4-qtr est: <\/strong><\/em>$175.11 vs last week&#8217;s $175.49<\/li>\n<li><em><strong>PE ratio: <\/strong><\/em>17x<\/li>\n<li><em><strong>PEG ratio: <\/strong><\/em>19x<\/li>\n<li><em><strong>SP 500 earnings yield: <\/strong><\/em>5.90% vs last week&#8217;s 5.94%<\/li>\n<li><em><strong>Y\/Y Growth of Fwd estimate: <\/strong><\/em>+0.89% vs last week&#8217;s +1.09% (too low &#8211; hasn&#8217;t risen for some time)<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li><em><strong>TTM est:<\/strong><\/em> $162.57 vs last week&#8217;s $162.86<\/li>\n<li><em><strong>TTM PE: <\/strong><\/em>18x<\/li>\n<li><em><strong>TTM PEG: <\/strong><\/em>2.2x<\/li>\n<li><em><strong>TTM SP 500 earnings yld: <\/strong><\/em>+5.47% vs +5.52%<\/li>\n<li><em><strong>Y\/y growth of TTM est: <\/strong><\/em>+7.71% vs 7.76%<\/li>\n<\/ul>\n<p>With Financials starting to report en masse on Tuesday, October 15th, when we will hear from 5 of the 23 scheduled Financial names to report between October 14 &#8211; October 18, the expected y\/y EPS growth rate for the sector (per IBES by Refinitiv) is +1.2%, which is expected to rise to +14.7% in Q4 &#8217;19.<\/p>\n<p>The strong growth expectation for Q4 &#8217;19 was surprising.<\/p>\n<p>Expect the 3rd quarter growth rate to rise for Financials and then the 4th quarter growth rate to fall somewhat, but also remember, it was Q4 &#8217;18 that saw the SP 500 correct 13% last year thus capital market activity might get a nice boost from an easy compare to Q4 &#8217;18.<\/p>\n<p>IBES had the actual Financial sector revenue growth at -4% for Q4 &#8217;18 with a -1% revenue growth rate expected for Q3 &#8217;19.<\/p>\n<p>Let&#8217;s see if we get revenue &#8220;upside surprises&#8221; within the Financial sector for Q3 &#8217;19.<\/p>\n<p><em><strong>Summary \/ conclusion:\u00a0<\/strong><\/em>The 5th bullet point above which shows the y\/y growth rate of the &#8220;forward estimate&#8221; down to less than 1%, is an issue. The last time that metric was this bad for any length of time was coming out of Q1 &#8217;16 SP 500 bottom. The forward estimate was even negative for several months in 2016. This is a potentially big week for SP 500 earnings given that Financials are cheap as a sector (see our mid-August &#8217;19 blog post <a href=\"https:\/\/fundamentalis.com\/?p=9262\">here<\/a>) so if the Financial sector &#8211; 12% of the SP 500 market cap &#8211; can see higher growth rates for forward quarters (i.e. Q4 &#8217;19 and 2020) it might help start to lift the compression we are seeing in forward estimates.<\/p>\n<p>It&#8217;s unusual to see such tight compression in the &#8220;forward 4-quarter growth rate&#8221; versus it&#8217;s 52-week prior number.<\/p>\n<p>If we compare the growth of the &#8220;trailing twelve month&#8221; (TTM) EPS (last bullet point), it looks much healthier and more in line with the long-run average of the SP 500, and might give better insight into the poor sentiment around forward earnings.<\/p>\n<p>Ex-Energy, for Q3 &#8217;19 SP 500 revenue growth is expected at 4.6% and SP 500 EPS at -1%.<\/p>\n<p>Expectations seem far too subdued and pessimistic to me, but let&#8217;s see what guidance looks like after Friday morning releases are done.<\/p>\n<p>Thanks for reading.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>As was covered yesterday in a broader blog post on sentiment around Q3 &#8217;19 SP 500 earnings before the first&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":[91],"tags":[],"class_list":["post-9386","post","type-post","status-publish","format-standard","hentry","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\/9386","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=9386"}],"version-history":[{"count":5,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/9386\/revisions"}],"predecessor-version":[{"id":9393,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=\/wp\/v2\/posts\/9386\/revisions\/9393"}],"wp:attachment":[{"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9386"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9386"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fundamentalis.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9386"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}