SP 500 Earnings Update: “Ex-Energy”, Q4 '14 Earnings To Grow +6.7%

We will get to the heart of the matter of the blog post today, and note that, despite the sturm and drang around earnings this past week, Greg Harrison of Thomson Reuters notes in the weekly “This Week in Earnings” that “If we look outside the Energy sector the picture becomes much brighter. Earnings in the other nine sectors of the SP 500 are expected to grow 6.7%, which is very close to the overall growth estimate of the estimate for q3 ’14 at the equivalent point in last quarter’s earnings season.”

That is exactly what I said last week on this blog right here, and I even took readers through the math.

In q3 ’14, the S&P 500 grew earnings over 10%, granted with an easy compare on JP Morgan’s quarter, since JPM was lapping the q3 ’13 London Whale charge of $1.25 or so.

The point is, q3 ’14 earnings grew roughly 7.5% – 9% on on operating basis, and I would expect 7.5% – 8% on an operating basis in q4 ’14, when the majority of the SP 500 has reported their q4 ’14 by late March ’15.

I do worry about the economic data getting weaker though. (However that is a separate post.)

In terms of the weekly earnings metrics, here you go (all metrics are based on the forward 4-quarter estimate):

Forward 4-quarter estimate for SP 500 as of 1/16/15: $124.91

P.E ratio: 16(x)

PEG ratio: 3.40(x)

Earnings yield: 6.19%

Year-over-year growth rate of forward estimate: +4.77% (Energy revisions are just crushing the forward estimate)

Summary/conclusion: With the three-day holiday this weekend, I plan on throwing up an earnings-related blog post every day this weekend, so to keep the earnings summary short and sweet for readers, with SP 500 operating earnings growing at mid to high single digits the last few years (5% – 8%), and the forward p.e ratio on the SP 500 trading between 14(x) and 16(x) the forward estimate, the SP 500 remains pretty fairly valued, with earnings growth (in my opinion) driving market appreciation as opposed to p.e expansion.

In 2013, the year the SP 500 was up roughly 32%, SP 500 operating earnings growth was 7.5% – 8% (again).

Despite the JPMorgan Chase & Co (NYSE:JPM), Bank of America Corporation (NYSE:BAC) and Citigroup Inc (NYSE:C) weakness this week, I still like Financials as our top sector pick for 2015.

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Written By: Brian Gilmartin