"Historical earning projection accuracy" is one of the metrics I believe in - while at the same time I have the perception that the 'made-up' number (that no one else is writing about - thus it must be a Factoids' fantasy) is a valuation concept that makes most reader's eyes glaze over.
This concept was invented during MLP research. The metric reveals MLP attributes that one could learn during intensive due diligence. MLP business models (or contracts) vary significantly. Some are more fee based in their EBITDA creation. Some are much more commodity sensitive in their EBITDA creation or generation. This causes earnings projection accuracy to vary between these two (fee based or commodity sensitive) groupings. The historical projection accuracy assessment can quickly tell you (if you already have years of data) what weeks of due diligence into the fundamentals would tell you -- or at least that is my working theory.
A dollar's worth of earnings 'where you can have faith in the earnings projection' is worth more than a dollar's worth of earnings in which you have less confidence. You should inherently know that from bond yields. It is my impression that retail investors fail to comprehend this. Without knowing of this valuation difference, they see the more risky equity investments selling at relative bargains - and the buy the (incorrectly perceived) bargains.
That is the lesson in the numbers that follow. I am not going to treat you like puppies and 'rub your nose in it'. The lesson is in there. Harvest it!
Warning - I have not yet input Q2-16 dividend amounts - but I have updated the 2016 number of dividend payments.
Technology & Industrial Dividend Growth Companies 05-16-16
The Q1-16 dividend is used for yield calculations. Div = dividend; EPS = earnings per share; LTM = last twelve months; YTD = year to date. This is another sector where the fiscal and calendar years are not in sync. ACN pays dividends only twice per year - and that quirk is accounted for in the yield calculation and the dividend/EPS ratio. The change in the price, price + dividend, 2016 EPS projection and target is the change since market's close of 12-31-15. BRCM's last day of trading was 1-29-16.
|The_Company_Name_&_Ticker||Price||Price||/Quarter||Yield||Ratio||Price||Pr+Div||16 EPS||Target||Div 1Yr||Div 3Yr|
|Analog Devices, Inc.||(NASDAQ:ADI)||55.32||55.43||0.420||3.03||60%||0.20||0.96||-15.41||-11.50||5.00||7.84|
|Applied Materials, Inc.||(NASDAQ:AMAT)||18.67||19.85||0.100||2.02||30%||6.32||6.86||9.09||9.79||0.00||0.00|
|Automatic Data Processing||(NASDAQ:ADP)||84.72||86.70||0.530||2.45||65%||2.34||2.96||-0.31||1.50||8.16||7.28|
|Cisco Systems, Inc.||(NASDAQ:CSCO)||27.16||26.97||0.210||3.11||37%||-0.70||0.85||1.32||-3.10||10.53||16.67|
|International Business Machines||(NYSE:IBM)||137.62||149.46||1.300||3.48||38%||8.60||9.55||-10.46||-3.22||18.18||17.65|
|Microchip Technology Inc.||(NASDAQ:MCHP)||46.54||47.95||0.359||2.99||54%||3.03||3.80||2.68||3.69||0.56||0.66|
|Maxim Integrated Products, Inc.||(NASDAQ:MXIM)||38.00||36.36||0.300||3.30||74%||-4.32||-3.53||-5.23||3.90||7.14||8.33|
|National Instruments Corporation||(NASDAQ:NATI)||28.69||26.97||0.200||2.97||99%||-6.00||-5.30||-26.36||-10.14||5.26||14.29|
|TE Connectivity Ltd.||(NYSE:TEL)||64.61||58.38||0.330||2.26||33%||-9.64||-9.13||0.25||-5.87||13.79||19.05|
|Texas Instruments Inc.||(NYSE:TXN)||54.81||58.02||0.380||2.62||51%||5.86||7.24||-0.34||6.51||11.76||11.90|
|Company||Price||Price||/Quarter||Yield||Ratio||Price||Pr+Div||16 EPS||Target||Div 1Yr||Div 3Yr|
|The Boeing Company||(NYSE:BA)||144.59||134.14||1.090||3.25||52%||-7.23||-6.47||-10.29||-10.89||19.78||41.58|
|Deere & Company||(NYSE:DE)||76.27||83.63||0.600||2.87||59%||9.65||11.22||-3.08||-2.57||0.00||5.88|
|E. I. du Pont de Nemours & Co.||(DD)||66.60||64.34||0.380||2.36||48%||-3.39||-2.82||-2.17||1.08||-14.80||-2.29|
|Emerson Electric Co.||(NYSE:EMR)||47.83||52.81||0.475||3.60||61%||10.41||11.40||1.31||6.02||1.06||5.28|
|General Dynamics Corp.||(NYSE:GD)||137.36||145.37||0.690||1.90||29%||5.83||6.84||0.00||-2.85||11.29||11.76|
|General Electric Company||(NYSE:GE)||31.15||29.96||0.230||3.07||61%||-3.82||-2.34||0.00||3.21||0.00||7.02|
|Honeywell International Inc.||(NYSE:HON)||103.57||114.84||0.595||2.07||36%||10.88||11.46||1.37||8.42||14.98||15.04|
|Northrop Grumman Corp.||(NYSE:NOC)||188.81||215.73||0.800||1.48||30%||14.26||14.68||2.30||7.59||14.29||15.15|
|PPG Industries Inc||(NYSE:PPG)||98.82||108.16||0.360||1.33||23%||9.45||9.82||-1.87||4.97||7.46||7.34|
|United Technologies Corp.||(NYSE:UTX)||96.07||101.82||0.640||2.51||39%||5.99||6.65||-0.15||2.95||0.00||6.54|
|The SPY [S&P 500 EFT] has changed 1.47% year to date.|
|The SPY - with unreinvested dividends - has changed 1.99% year to date.|
|The XLK [Tech Spider EFT] has changed -0.21% year to date.|
|The XLK - with unreinvested dividends - has changed 0.30% year to date.|
|The XLI [Industrial Spider EFT] has changed 5.13% year to date.|
|The XLI - with unreinvested dividends - has changed 5.66% year to date.|
|With the 10 Treasury at 1.74% and the sector average yield on Q1 dividends at 2.8% - the spread is 106 basis points.|
|* The change in the dividend is for the last twelve months and not year to date.|
Price/Earnings Ratios 05-16
Companies that have fiscal years that match calendar years: BRCM, IBM, INTC, NATI, TXN, CAT, DD, GD, GE, HON, MMM & UTX
|EPS / Share||% EPS Growth||Price/EPS||Fiscal Yr EPS Range||YearEnd|
The Importance of EPS Revisions year to date The following companies had growing EPS estimates since the beginning of 2016: ACN, APH, AMAT, CSCO, INTC, MCHP, ORCL, TEL, DHR, EMR, HON, MMM, NOC, PH and RTN. Their mean price change for the year is 6.05%. Their mean total return for the year is 6.80% - and 12 of the 15 beat the sector median yearly price change. Their mean price target change for the year is 3.84%. Their mean historical EPS accuracy rating is 1.82.
The following companies had decreases - but decreases of less than 5% - to the EPS estimates: ADP, BRCM, MSFT, QCOM, TXN, CAT, DE, DD, ETN, GD, GE, PNR, PPG and UTX. Their mean price change for the year is 4.65%. Their mean total return for the year is 5.56% - and 9 of the 14 beat the sector median yearly price change. Their mean price target change for the year is 1.38%. Their mean historical EPS accuracy rating is 2.79.
The following companies had decreases to the EPS estimates of more than 5% since the beginning of 2016: ADI, AAPL, IBM, MXIM, NATI, STX, BA and MON. Their mean price change for the year is -8.44%. Their mean total return for the year is -7.47% - and 1 of the 8 beat the sector median yearly price change. Their mean price target change for the year is -12.69%. Their mean historical EPS accuracy rating is 2.84.
My 'metrically uninformed' common sense would tell me that the dominant force in price change is EPS growth. The stats that follow indicate that such in impression is wrong.
The Importance of EPS Trends year to date The following companies had 2016 EPS projections more than 5% higher than their 2015 actual EPS numbers: ACN, APH, AMAT, ADP, MSFT, MXIM, NATI, TEL, BA, DD, DHR, GE, HON, MMM, PPG and RTN. Their mean price change for the year is 1.93%. Their mean total return for the year is 2.64% - and 8 of the 16 beat the sector median yearly price change. Their mean price target change for the year is 1.98%. Their mean historical EPS accuracy rating is 2.17.
The following companies had 2016 estimates between a 5% increase and a 5% decreases from their 2015 EPS actual numbers: BRCM, CSCO, INTC, MCHP, TXN, EMR, ETN, GD, NOC, PNR and UTX. Their mean price change for the year is 5.88%. Their mean total return for the year is 6.79% - and 8 of the 11 beat the sector median yearly price change. Their mean price target change for the year is 2.73%. Their mean historical EPS accuracy rating is 2.43.
The following companies had 2016 EPS estimates lower than 5% of their 2015 actual numbers: ADI, AAPL, IBM, ORCL, QCOM, STX, CAT, DE, MON and PH. Their mean price change for the year is -0.74%. Their mean total return for the year is 0.32% - and 6 of the 10 beat the sector median yearly price change. Their mean price target change for the year is -8.64%. Their mean historical EPS accuracy rating is 2.76.
The talking heads will tell you that some companies "over promise and under deliver". I believe that is an overly simplist perception. I believe the difference comes from things like - as it is with MLPs - "business models and commodity sensitivey" like attributes. Put in different words - earnings disappointments are something you can partially project before the year even starts -- by just knowing prior year projection accuracy.
The Importance of Historical Earnings Projection Accuracy and their correlation to other metrics The following companies had accuracy ratings below 2.0 (the most accurate grouping): ACN, APH, CSCO, MCHP, MXIM, ORCL, DHR, HON, MMM, MON, NOC, PPG and RTN. Their mean price change for the year is 6.51%. Their mean total return for the year is 7.29% - and 10 of the 13 beat the sector median yearly price change. Their mean price target change for the year is 2.97%. Their mean historical EPS accuracy rating is 1.24. Their mean yield is 2.01%. Their mean P/E ratio is 18.87. Their mean Factoids' CAGR is 8.37. Their Yahoo CAGR is 9.22.
The following companies had accuracy ratings between 2 and 3: ADI, AAPL, AMAT, ADP, BRCM, INTC, MSFT, QCOM, TXN, BA, DE, GD, GE, PH, PNR and UTX. Their mean price change for the year is 1.77%. Their mean total return for the year is 2.65% - and 8 of the 16 beat the sector median yearly price change. Their mean price target change for the year is -0.98%. Their mean historical EPS accuracy rating is 2.31. Their mean yield is 2.59%. Their mean P/E ratio 17.20. Their mean Factoids' CAGR is 7.52. Their Yahoo CAGR is 8.82.
The following companies had accuracy ratings over 3.0 (the least accurate group): IBM, NATI, TEL, STX, CAT, DD, EMR and ETN. Their mean price change for the year is -3.08%. Their mean total return for the year is -2.13% - and 4 of the 8 beat the sector median yearly price change. Their mean price target change for the year is -5.95%. Their mean historical EPS accuracy rating is 4.5. Their mean yield is 4.48%. Their mean P/E ratio 17.74. Their mean Factoids' CAGR is 5.69. Their Yahoo CAGR is 8.36.
I underlined the P/E ratios to show this - That the P/E ratios for the lower risk (or higher accuracy) companies are noticeably higher. If one did not know that accuracy was a good thing, then one would be reluctant to pay for the higher valuation.
Disclosure: I am/we are long AAPL, APH, CSCO, QCOM, TEL, HON, UTX.