EPS Surprises and Estimate Revisions Clearly Bullish; Valuation Still a Concern

This week we are looking at current trends in Earnings Per Share performance vs. Wall Street Analysts expectations for all 500 firms in the S&P 500 (SPY). For the most part the trends below are bullish…

Big beats (10% positive surprise or more) have really spiked – bullish

Percent of firms beating estimated EPS is also on the rise – bullish

The median surprise is positive and on the rise – bullish

On net, the trend in EPS forecast revisions for both 2009 and 2010 is positive – bullish

Over the last 90 days, the forward EPS estimates for 2009 and 2010 are each up – bullish
Over the last 7 days, the forward EPS estimates for 2009 and 2010 are each down – bearish

At 1016, the S&P 500 is trading just above our range of fair value – bearish

Data sources: Yahoo! Finance, Standard & Poors

Formatted PDF

Disclaimer: This information is presented for general purposes only and should not be construed as being the primary basis for an investment decision, or as reflecting recommendations taking into account your individualized requirements. As always, consult your financial advisor before making any decision based on this or any other information. (full disclaimer (.pdf))

Disclosure: Author has no possition in SPY

Comments

[Albertarocks:]

"Big beats (10% positive surprise or more) have really spiked – bullish"

Good lord, I hope the average little investor (I'm in that camp too) are awake enough to see these reports for what they really are. We're going to have to develop some method of reporting that's a lot more honest than this entire smoke and mirrors world that includes one of the bankers' favorite tools of manipulation, known as "estimates".

We have to ignore this type of Wall Street garbage and look at reality. This stuff is put out by spinsters, by the propaganda puppets who dance to the tune they're told to dance to. Don't get me wrong. I love positive reports. I love a healthy economy. I love it when the world is all green and healthy and fluffy and the sky is blue. But I only love positive reports when they're "honest" positive reports.

10% positive surprise? 10% of what? Of a cooked up estimate? If anybody out there believes these estimates aren't rigged so that they're guaranteed to be beat, you're still living in "sheepsville".

Tese phony reports and the even phonier "estimates" are put out with an agenda not even remotely related to "pure honesty". When we consider that if the last report for a company was horrendous, and the new report shows that the earnings are up 12% over last quarter, they're now "horrendous + 12%". That's still horrendous, in my books. Yes, if the report is honest, then that's an improvement. Yay! I can cheer an improvement. But where did those improvements come from?

They came from one side of the equation only.... cutting costs, firing employees, cutting inventory, cutting advertising, cutting, cutting ,cutting. Where are the increased earnings that result from increased sales, a robust surge in consumer activity and new consumers entering the work force of a healthy economy? There aren't any!

There's nothing bullish about "beats" in this type of critically dangerous environment, and there's nothing bullish about "estimates". Who's estimates? JPM's estimates?

And to put the icing on the proverbial cake, look at the title of the 3rd chart. "MEDIAN EPS SURPRISE". "SURPRISE"? Wall Street loves that term, don't they? The only people who will be surprised are those who fall for this crap and then see their portfolio vaporize. The markets simply have to return to sanity and fall to levels where earnings make any sense at all. That should be no surprise.

I can see it now. The investor who cheers at these phantom "surprises" today, opens his monthly statement at the end of October and barfs on his shoes in sheer horror when he see's the report. SURPRISE!

Sep 06 12:26 PM

[Dollarhane:]

Just take into account that analyst earnings are always behind the trend. I understand that analysts will argue the case but when you chart all analysts and track the performance of the S&P, you will see a clear lagging indicator. I agree that this is a bullish sign but just caveat of where all analysts were in Q3 of 2008 or March of this year....

Sep 07 09:06 AM