S&P 500 Weekly Earnings Update: Forward Estimate Growth Rate Showing Signs Of A Bottom

Brian Gilmartin, CFA profile picture
Brian Gilmartin, CFA
8.95K Followers

Summary

  • It appears that as of 11/1/19, the y/y change in the forward estimate's growth rate appears to have bottomed.
  • This number peaked almost one year ago almost exactly coincident with the market peak in 2018, before the fourth-quarter correction.
  • The best result we can hope for is that we continue to see the "1-year chg %" continue to expand.

First order of business this week is to relay to readers a note received this past week from John Butters, the FactSet principal behind FactSet's weekly "Earnings Inisight" report.

John sent me an e-mail this week, saying that FactSet did not state that 2018's "organic" growth rate for S&P 500 earnings was 14%, a figure I've been using on this blog for several months.

John said that FactSet has not published an official tax-cut-adjusted S&P 500 earnings growth figure for 2018. IBES by Refinitiv (the old Thomson Reuters division) and FactSet's Earnings Insight are the two primary sources for earnings detail, with sources always disclosed. Because of discretion around what can be "operating" versus non-operating earnings, this blog is always careful where earnings data is sourced.

In my own defense, I could have sworn I read this in a FactSet Earnings Insight report earlier in 2019, and there wasn't a lot of ink devoted to the disclosure, but rather just one line in the "Earnings Insight" commentary. (I remember thinking at the time it was puzzling why FactSet didn't make a bigger deal around the disclosure).

However, the clarification has to be disclosed to readers since a number of blog posts have quoted this figure.

This blog will not be using the 2018 S&P 500 "organic" growth rate of 14% again.

SP 500 Earnings data - by the numbers:

  • Fwd 4-qtr est: $171.79 vs. last week's $171.89
  • PE ratio: 18.3x
  • PEG ratio: 42.3x
  • S&P 500 earnings yld: 5.46% vs. last week's 5.47%
  • Y/y growth of fwd est: (0.43% vs. 0.51% last week (why the PEG is so high is that this y/y growth of the forward estimate is that this compares this week's forward estimate with the same estimate 52 weeks prior. 18x PE / 0.43% = 42x)
  • TTM est: $163.89 vs. last week's $163.88
  • TTM PE: 19x
  • TTM PEG: 3.8x
  • S&P 500 earnings yld: 5.21% vs. 5.22% last week

Y/y growth of TTM est: Dividing the forward estimate of $171.79 vs., the TTM actual EPS of $163.89 leaves us with 4.82% growth vs. 4.89% from last week.

Year-over-year change in S&P 500 earnings growth starting to improve?

This part of the S&P 500 earnings tracking spreadsheet was shown a few weeks ago, and it appears that as of 11/1/19, the y/y change in the forward estimate's growth rate appears to have bottomed. This number peaked almost one year ago almost exactly coincident with the market peak in 2018, before the fourth-quarter correction.

The best result we can hope for is that we continue to see the "1-year chg %" continue to expand.

That's not a prediction, but "green shoots" with three weeks left in December '19.

Summary/conclusion: Next week we will hear from Toll Brothers (TOL) and Costco (COST) in terms of names we regularly follow for clients, although nothing is planned with either name. In the next few weeks, we'll also hear from FedEx (FDX), Oracle (ORCL), and Micron Technology (MU). FedEx will be lapping its worst quarter of numbers since the '08 recession, so the comparisons get easier in calendar 2020.

It's been a weird period for the "forward earnings estimate" the last 14 months. Year-over-year growth rates have been headed gradually down for that period.

Let's wait and see if November 1 '19 was the low point.

Take all of this with substantial skepticism, and evaluate the information in light of your own portfolio.

December 15th and the tariff deadline looms large after a blowout jobs report.

Thanks for reading.

Original post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

This article was written by

Brian Gilmartin, CFA profile picture
8.95K Followers
Brian Gilmartin, is a portfolio manager at Trinity Asset Management, a firm he founded in May, 1995, catering to individual investors and institutions that werent getting the attention and service deserved, from larger firms. Brian started in the business as a fixed-income / credit analyst, with a Chicago broker-dealer, and then worked at Stein Roe & Farnham in Chicago, from 1992 - 1995, before striking out on his own and managing equity and balanced accounts for clients. Brian has a BSBA (Finance) from Xavier University, Cincinnati, Ohio, (1982) and an MBA (Finance) from Loyola University, Chicago, January, 1985. The CFA was awarded in 1994. Brian has been fortunate enough to write for the TheStreet.com from 2000 to 2012, and then the WallStreet AllStars from August 2011, to Spring, 2012. Brian also wrote for Minyanville.com, and has been quoted in numerous publications including the Wall Street Journal.
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