Now that April has come and gone and earnings season is more than half way done, it seems like a useful time for an overview of the Q1 2012 earnings reports for the S&P 500 (SPY) and a look at forward estimates for 2012 and 2013.
Through April 30, 2012, 305 companies in the S&P 500 (IVV) have reported their earnings. From an operating earnings basis, 212 beat the consensus estimate, 34 met the estimate, and 59 companies missed. The 69.51% success rate thus far is ahead of last quarter's 58.55% rate of companies beating the operating earnings estimate.
Thus far, the sector with the highest percentage of companies beating the operating earnings estimate is Materials (IYM). With approximately three-quarters of Materials companies reporting, 87% beat their earnings estimates. Consumer Discretionary (XLY) is also performing strongly with 80%, or 36 of the 45 companies thus far reporting, beating their earnings estimates. The Industrials (XLI) and Information Technology (XLK) sectors are also putting up strong numbers with 75% of Industrials and 74% of Info Tech companies thus far exceeding operating earnings estimates.
The two weakest sectors in terms of beating earnings estimates are Utilities (XLU) and Energy (XLE). Only 25% of Utilities beat estimates. Although, to be fair, only eight companies have thus far reported. With 56% of Energy companies having reported through April 30, only 50% beat their estimates.
It's relatively widely known that earnings growth itself has been slowing for the S&P 500 as a whole and that Apple (AAPL) seems to make up an ever bigger chunk of that earnings growth. Nevertheless, companies and analysts seem to have done a great job managing the estimates so that they can be beaten. At least so far they have.
Despite slowing earnings growth for the S&P 500 as a whole, analysts continue to ramp up their numbers. In my article, "Breaking Down S&P 500 Earnings Estimates In Search Of Investment Opportunities," I outlined the consensus earnings estimates for the S&P 500 and its individual sectors through March 22, 2012. Over the past six weeks, the earnings estimates for the S&P 500 have continued to rise. The 2012 bottom up consensus operating earnings estimate for the S&P 500 now stands at $105.64 from $104.94 on March 22. For 2013, the number has risen to $119.35 from $118.98.
It appears analysts are quite bullish about Q4 2012 with analysts projecting the trailing twelve month earnings to jump from $100.98 on September 30 to $105.64 on December 31. Then earnings are expected to continue to accelerate from 2012's 9.54% projected growth rate to 2013's 12.98%.
If you are interested in the latest consensus estimates for the S&P 500 as a whole and each of its ten sectors, see the table below.
2011 to 2012 Expected EPS Growth
2012 to 2013 Expected EPS Growth
As you perhaps noticed, not all the sectors are expected to experience earnings growth, let alone stellar earnings growth. The weakest projections are in Utilities, which is expected to see earnings decline in 2012 and growth of just 2.369% in 2013. Furthermore, if the analysts are correct, Health Care (XLV), Industrials, and Information Technology will see their growth rates slow in 2013. If this comes to pass, it could certainly have an effect on valuations, that sometimes tough-to-nail-down piece of coming up with a price target for a stock. This will be important for investors to keep in mind so that they won't be caught off guard if their stocks start to decline despite rising earnings. Sometimes slowing growth can cause valuations to contract to an extent that despite rising earnings, stocks still decline.
I hope you find this information useful in your quest to come up with appropriate valuations for securities you currently own and hope to own in the future. Good luck and happy investing!
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.