Earnings: More Or Less Erosion?
Ed Yardeni | Mar 05, 2015 12:22AM ET
At the end of last year and early this year, I lowered my earnings forecasts for this year and next year by a total of $10 each to $120 per share in 2015 and $130 in 2016 for the S&P 500. I did so in response to the plunge in oil prices, which depressed earnings for the Energy sector, and the jump in the trade-weighted dollar, which depressed earnings for corporations with significant overseas earnings.
Industry analysts did the same. Their estimate for this year fell from $133.04 at the end of September to $120.58 currently. Their estimate for 2016 is down from $145.94 to $136.68 over this same period. As a result, S&P 500 forward earnings peaked at a record $129.57 during the week of October 10, and was down to $123.37 at the end of last month.
Is the worst over? It probably is if the price of oil is stabilizing, and if the same can be said for the dollar. The dollar could continue to strengthen if the Fed starts raising interest rates at mid-year, as widely expected. However, this move may be widely discounted. Let’s have a closer look at the latest analysts’ consensus earnings estimates:
(1) Forward earnings. Forward earnings rose last week for the first time since the week of January 2 as the estimate for 2016 stopped falling while the 2015 estimate fell at a slower pace. The estimates for all four quarters of this year continued to fall, but all did so at a slower pace last week. The y/y growth rates are still expected to be negative for Q1 (-3.4%) and Q2 (-1.9). However, buybacks could push those growth rates up to marginally positive readings.
(2) Sector earnings. I am now tracking 2015 and 2016 consensus earnings for the 10 sectors of the S&P 500. The Energy sector had the highest earnings per share of all of them until late last year, when it plunged below six of them for this year and four of them for next year. It fell again in mid-February, but at a slower pace as it started to reflect the recent rebound in the price of oil.
There has been some modest erosion recently in the 2015 earnings estimates for Industrials, Consumer Staples, and Materials. This is most likely attributable to the stronger dollar, though IT estimates are holding up well.
Today's Morning Briefing: Tank Tops. (1) Oil patch is less slippery slope. (2) Less unnerved about global economy. (3) Saudis giveth and taketh. (4) Record US crude oil inventories topping storage tanks. (5) US wells still gushing crude. (6) Rigs down for the count. (7) Usage rising. (8) Global economy looking up according to Eurozone retail sales and global PMI. (9) Asian central banks spiking the punch bowl. (10) Game of Thrones. (11) Churchill or bust. (12) Is the worst over for earnings? (13) Some sector erosion besides Energy.
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