Flood of Q4 ’12 Earnings To Start This Week

Per ThomsonReuters “This Week in Earnings” the “forward 4-quarter” earnings estimate for the the S&P 500 as of January 11th was $113.31, down from $113.88 last week, but still a record high estimate for the key benchmark, and above the high of $112.26 from early October.

The S&P 500 closed Friday, Jan 11th at 1,472.05, just shy of the mid-September multi-year high of 1,474, and with a 13(x) multiple on the forward estimate.

With the flood of Q4 ’12 earnings scheduled to start this week, the 3rd quarter results (now final) show that the SP 500 earnings grew 0.1% year-over-year (y/y), while SP 500 revenues fell -0.8% y/y.

4th quarter, 2012 earnings are now expected to grow 1.9% year-over-year, while revenue growth is expected to grow 1.8%.

While these Q3 ’12 actuals, and Q4 ’12 estimates seem pretty paltry, we feel that these results represent the bottom of the earnings cycle for the S&P 500. We expect earnings and revenue growth to gradually improve in Q4 ’12, and as we move through 2013.

2013 S&P 500 earnings growth estimates (starting with Q3 ’12)

Q4 ’13 + 17.7% (est)

Q3 ’13 + 10.7% (est)

Q2 ’13 +7.7% (est)

Q1 ’13 +3.7% (est)

Q4 ’12 +1.9%, revenue growth +1.8% (est)

Q3 12 +0.1%, revenue growth -0.8%

There is still downward pressure on the forward estimates in terms of revisions, but the “absolute” (i.e. dollar) estimates are still expected to show slow growth through calendar 2013.

Do I expect the 4th quarter, 2013 earnings to come in at +17.7% and prove today’s estimate to be remarkably prescient ? Heck no! But given the Q3 and Q4 ’12′s numbers (and the easy comparisons), I’ll make the prediction right now that I fully expect Q3 and Q4 ’13′s earnings growth to be at least double-digits, when we get the actual results in about nine months.

Full year 2013 earnings growth is currently expected at +10.6%. I’d say we have a better-than-even chance of achieving that in full-year 2013, and that earnings growth for 2013 will be “back-end loaded” for the year.

Forward 4-quarter estimates now growing again:

In investing, correlation is not always causality, but when we look at (perhaps) one reason the stock market found a bottom in late June, early July, 2012 we immediately study the earnings data for clues. Since we have tracked earnings data for more than a decade, and tracked that “forward 4-quarter” estimate, we found that in early August, the forward S&P 500 earnings estimate started showing year-over-year growth after being stagnant for almost a year.

here is our earnings preview . There is at least $0.40 – $0.50 of additional eps baked into Schwab’s fee waivers. If the stock breaks out here, then the market is going much higher, but the stock needs to clear $15.58 – $15.68 on heavy volume, and I would speculate it would only do that if the economy turned out to be much stronger-than-expected, SP 500 earnings turned out to be much stronger-than-expected, and the Fed was within 6 – 9 months of raising short-term rates. Schwab is the best on-the-run monetary policy tell you have outside of fed funds futures. (long SCHW)

• Ford (F) had a big week, up over 3%, on a doubling of the small dividend and a few upgrades. The stock looks overbought here. (Long F)

• Our worst trade in 2012: selling Google (GOOG) at $580 in late July, and watching it trade to $770 in just two months following. Best trade in 2012, waiting to buy Facebook (FB) under $20, and then doing so.

• IBM (IBM) had a tough 4th quarter, and is still off its $210 all-time high. The stock put in a series of highs near $210 – $211 in both April and October, and then sold off hard in October after reporting earnings. Earnings estimates have remained pretty constant for 2013 and 2014 following the October report. I think a lot of IBM’s trading action will be the result of 2013 guidance, which we hear next week. Expect management to be conservative, but generally positive. (Long IBM)

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

Nothing much has changed from our long-term perspective:

1) We remain tilted towards equities in our balanced accounts, within the 60/40, 70/30 traditional split

2.) We remain overweight financials, industrials and technology. Apple looks like it is basing, but the company is lapping a huge December quarter from last year. The earnings estimates on Apple (AAPL) are somewhat deceptive, with a positive bias. Check back here early next week, and we’ll tell you why.

We are waiting on a pullback in financials to increase our weighting to the sector. Financials are one way to play the housing recovery, with a cheaper valuation. Industrials will benefit from a resurgent China, Western Europe and Japan.

Written By: Brian Gilmartin