Weekly Earnings Update: Still No Growth In The Forward Estimate

The S&P 500 forward 4-quarter EPS estimate per Thomson Reuters “This Week in Earnings” was $122.05 this past week, versus last week’s $122.17, so the slow drip lower of the forward 4-quarter dollar estimate continues.

• P/E ratio: 17.4(x)
• PEG ratio: -23.5(x) and you’ll see why in a second. Using the two earnings related blog posts from earlier this week, (here and here), using the Ex-Apple (NASDAQ:AAPL) and Ex-Energy Q1 ‘15 earnings growth of 8.8%, the PEG ratio looks somewhat normal, but still elevated, with a P.E 2(x) the growth rate.
• S&P 500 earnings yield: 5.75%
• y/y growth rate of forward estimate: -0.74%, down from -0.68%.

Analysis: The fact that the forward 4-quarter dollar estimate is struggling to turn positive is more than a little disconcerting. This is the 3rd consecutive week we’ve seen a lower y/y growth rate. I’ve always used the forward 4-quarter estimate to wash out the management guidance noise and the financial media distractions, since it is one of the few quantifiable forward-looking metrics, that is also a fundamental foundation of the equity markets. (Management’s will frequently issue their own quarterly and annual guidance, but Street analysts that follow the company will model their own inputs and may arrive at consensus estimates that differ than where the company guided to, which is a very nuanced aspect to follow earnings data. It is why you will frequently hear of a company management team raising or lowering guidance, but the stock may not move much because analysts have probably already built that guidance into models and also know that some company management’s always lean bullish or bearish (mostly wildly bullish in the late 1990’s, and mostly cautious and conservative post-2008.)

It requires a separate blog post, but one thing noted with this week’s TWIE is that the Energy Estimates for Q2 ’15 and Q3 ’15 have stopped declining, at least relative to their April 1 estimates. Again, I need to post on this separately to ferret out the detail, but longer-term the Energy earnings growth may not be as robust in 2016 as some people think, but 2015’s estimates may have incorporated “worst-case” earnings growth (if that makes any sense at all). In other words, the slope of the crude oil recovery and the earnings growth in 2016, may not be as “robust” as many currently expect.

Of the major sectors, Financials and Health Care are the two sectors with better actual Q1 ’15 earnings growth than what was expected on January 1 ’15. That is important. Technology is close, at +9.5% versus the +10.2 % on January 1, but hasn't yet exceeded the January 1 target. Telco and Utes are also above their January 1 ’15 growth estimates but make up just 5% of the S&P 500 by market cap.

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Looking at the linked blog posts from earlier this week, it is still fascinating to me that “ex-Apple and Ex-Energy” the S&P 500 Q1 ’15 growth rate is 8.8%. Thanks to Greg Harrison for providing this data breakout.

You aren’t hearing that story in the financial media.

Written By: Brian Gilmartin