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Earnings Estimates Continue to Increase
Key Points:
Health Care expected to take earnings crown from energy in 2009 and keep it in 2010
Energy's earnings share expected to plunge to 11.1% from 23.1%
Financials' 2009 earnings share expected to rise to 11.3% from -2.0% in 2008.
12-month forward S&P P/E of 14.36 equates to earnings yield of 6.97%, which isattractive relative to 10-year T-note yield of 3.79%, but only mediocre relative to 6.27% A-rated 10-year corporate.
T-note rates are rising and more realistic earnings yields of near 6.34% based on lower earnings ($60) means the spread, while still attractive, is not overwhelming.
Earnings share, including historical, based on current make up of S&P 500
- Estimate increases outnumber cuts by more than 5:4 margin
- Second-quarter total net income expected to be down 35.9% year over year
- Staples only sector expected to post positive growth in second quarter
- Seven sectors expected to decline more than 25%
- Financials expected to rebound after disastrous 2008
- Median EPS growth in second quarter expected to be -18.8%
- Third quarter expected to be down 22.7% year over year
- Full-year 2009 expected to fall 14.2%; implies strong growth in fourth quarter
- Bottom up estimate for S&P 500 now $57.40 in 2009 versus $57.27 last week
- S&P 500 now expected to earn $73.53 in 2010 versus $72.49 last week
Total Net Income Growth
- Early results ugly with total net income down 47.6%, but only 8 companies
- Total net income reported $1.049 billion, versus $2.003 billion last year and $1.465 in Q1
- Remaining firms expected to post 35.9% decline
- Staples expected to lead with small increase, followed by small declines in Health Care and Utilities
- Materials and Energy expected to see massive year over year declines
| Sector | Q1 '09 A | Q2 '09 A | Q3 '09 E | 2008 A | 2009 E | 2010 E | |||
| Cons. Disc. | -2.02% | -15.39% | -32.47% | 4.71% | -14.06% | 10.15% | |||
| Cons. Stap. | -26.88% | -21.82% | -18.91% | 10.65% | -14.89% | 9.19% | |||
| Materials | -75.32% | -56.03% | -67.24% | -13.37% | -42.48% | 21.00% | |||
| Technology | -21.71% | -72.58% | -48.62% | 4.07% | -27.42% | 20.81% | |||
| Financials | -173.95% | -142.55% | -179.86% | -37.71% | -218.23% | -90.69% | |||
| S&P | -37.79% | -47.61% | -45.35% | -3.20% | -35.05% | 25.21% | |||
| Sector | Q2 '09 | Q2 '08 | Q1 '09 | Q1 '08 |
| Cons. Disc. | $616 | $728 | $1,058 | $1,080 |
| Cons. Stap. | $231 | $295 | $240 | $328 |
| Materials | $200 | $455 | $97 | $393 |
| Technology | $89 | $324 | $247 | $315 |
| Financials | -$86 | $202 | -$177 | $239 |
| S&P | $1,049 | $2,003 | $1,465 | $2,355 |
| Sector | Q1 '09 A | Q2 '09 E | Q3 '09 E | 2008 A | 2009 E | 2010 E | ||
| Cons. Stap. | -6.01% | 1.54% | 0.15% | 15.39% | -1.44% | 8.47% | ||
| Health Care | 0.52% | -4.90% | -4.41% | 12.46% | -2.81% | 9.27% | ||
| Utilities | -1.45% | -7.20% | 0.77% | 1.79% | -1.67% | 8.56% | ||
| Telecom | -18.67% | -25.36% | -15.63% | -4.51% | -19.56% | 5.28% | ||
| Technology | -27.18% | -32.81% | -19.63% | 19.46% | -19.69% | 20.27% | ||
| Cons. Disc. | -46.65% | -34.97% | -17.53% | -30.20% | -5.97% | 41.07% | ||
| Financials | 6.64% | -36.03% | 285.78% | -107.08% | -609.44% | 59.58% | ||
| Industrial | -35.63% | -41.29% | -33.73% | 1.20% | -31.07% | 7.52% | ||
| Energy | -60.57% | -67.36% | -66.83% | 21.87% | -58.97% | 44.47% | ||
| Materials | -74.07% | -85.07% | -64.35% | -13.36% | -64.69% | 96.47% | ||
| S&P | -27.13% | -35.80% | -22.36% | -18.26% | -13.86% | 23.77% | ||
| Sector | Q1 '09 A | Q2 '09 E | Q3 '09 E | 2008 A | 2009 E | 2010 E | ||
| Cons. Stap. | -6.34% | 1.19% | -0.20% | 15.39% | -1.71% | 8.48% | ||
| Health Care | 0.52% | -4.90% | -4.41% | 12.46% | -2.81% | 9.27% | ||
| Utilities | -1.45% | -7.20% | 0.77% | 1.79% | -1.67% | 8.56% | ||
| Telecom | -18.67% | -25.36% | -15.63% | -4.51% | -19.56% | 5.28% | ||
| Technology | -27.12% | -33.27% | -19.96% | 19.58% | -19.96% | 20.27% | ||
| Cons. Disc. | -43.46% | -33.97% | -19.57% | -27.19% | -7.88% | 38.63% | ||
| Financials | 4.20% | -36.95% | 265.90% | -106.74% | -627.20% | 61.09% | ||
| Industrial | -36.39% | -41.57% | -34.29% | 0.74% | -31.24% | 7.76% | ||
| Energy | -60.57% | -67.36% | -66.83% | 21.87% | -58.97% | 44.47% | ||
| Materials | -74.07% | -85.07% | -64.35% | -13.36% | -64.69% | 96.47% | ||
| S&P | -27.27% | -35.92% | -22.74% | -18.00% | -14.24% | 23.79% | ||
Scorecard and Median EPS Growth:
- 6 out of 8 early reporters have been positive surprises
- The median surprise is a very high 18.8%
- Companies beat very low expectations; even with surprises, median EPS still down 33.8%
- Half of those yet to report expected to see EPS fall by more than 18.75% year over year.
| Sector | % Reported | Median % Surprise | # Pos Surprise | # Neg Surprise | # Match | ||||
| Cons. Disc. | 3.70% | 13.79% | 3 | 0 | 0 | ||||
| Cons. Stap. | 2.44% | -3.70% | 0 | 1 | 0 | ||||
| Industrial | 1.72% | 25.49% | 1 | 0 | 0 | ||||
| Tech | 2.67% | 20.46% | 1 | 0 | 1 | ||||
| Financial | 1.25% | 35.71% | 1 | 0 | 0 | ||||
| S&P 500 | 1.60% | 18.66% | 6 | 1 | 1 | ||||
| Sector | 2Q '09 (A) | 3Q '09 (E) | 2008 (A) | 2009 (E) | 2010 (E) |
| Cons. Disc. | -2.33% | -16.67% | -3.05% | -1.89% | 10.19% |
| Cons. Stap. | -22.39% | -17.39% | 10.65% | -14.89% | 9.19% |
| Industrial | -55.86% | -67.48% | -35.33% | -11.05% | 21.00% |
| Tech | -104.90% | -56.06% | 32.12% | -3.54% | 46.22% |
| Financial | -142.80% | -148.60% | -37.71% | -218.20% | -90.69% |
| S&P 500 | -33.77% | -27.58% | -3.05% | -12.97% | 11.23% |
| Sector | 2Q '09 (E) | 3Q '09 (E) | 2008 (A) | 2009 (E) | 2010 (E) |
| Healthcare | 2.63% | 6.19% | 16.98% | 12.55% | 10.57% |
| Cons. Stap. | -3.35% | 1.57% | 11.99% | 8.60% | 9.10% |
| Utilities | -5.41% | 3.19% | 9.28% | 3.79% | 7.75% |
| Telecom | -9.09% | -1.37% | -2.94% | 3.03% | 5.50% |
| Cons. Disc. | -23.00% | -15.65% | 9.41% | -9.15% | 11.81% |
| Industrial | -23.91% | -21.05% | 16.22% | 13.64% | 9.84% |
| Tech | -27.78% | -13.79% | 18.83% | 14.64% | 11.19% |
| Financial | -37.27% | -19.01% | 7.84% | -21.20% | 8.46% |
| Materials | -53.24% | -30.93% | 13.56% | -4.76% | 14.16% |
| Energy | -57.87% | -66.01% | 12.35% | 21.29% | 17.42% |
| S&P 500 | -18.75% | -11.72% | 13.30% | 6.64% | 10.49% |
The Zacks Revisions Ratio: 2009
- Revisions ratio for full S&P 500 up to 1.29, from 1.25
- Steady climb in the ratio for over 3 months, was 0.32
- Five sectors in positive territory; Consumer Staples and Tech lead
- Now into positive territory for the S&P 500 as a whole
- Industrials and Materials continue to see estimates cut
- Ratio of firms with rising to falling mean estimates falls to 1.04 from 1.05
- Total number of revisions (4-week total) down to 1,653 from 1,758 (-6.0%)
- Increases down to 930 from 978 (-4.9%); cuts down to 723 from 780 (-7.3%)
- Total revisions activity approaching low for the quarter
There has been a steady increase in the revisions ratio, which is now up for 15 weeks in a row. Granted it started at absolutely horrific levels, with estimates being cut at more than four to one for the S&P 500 as a whole, and in individual sectors, the cuts were often in excess of 10 to one. This week we finally broke into positive territory, which we define as at least five increases for every four cuts. We have to conclude that the green shoots are taking hold, at least as far as analysts’ projections for earnings.
Tech has moved up substantially in the Revisions Ratio rankings in large part due to the strength in the Chip industry. Some of the real standouts in terms of large numbers of estimate increases leading to very large increases in mean estimates are Analog Devices (ADI - Analyst Report), National Semiconductor (NSM - Analyst Report) and Texas Instruments (TXN - Analyst Report).
| Sector | Avg. 4wk EPS Change (FY1) | Revisions Ratio | Firms With FY1 EPS Increase | Firms With FY1 EPS Decrease |
| Consumer Staple | 0.56% | 3.43 | 24 | 10 |
| Technology | 1.70% | 3.24 | 34 | 19 |
| Consumer Disc | -0.28% | 2.50 | 36 | 32 |
| Telecom | 0.02% | 1.33 | 5 | 4 |
| Financial Services | 2.94% | 1.26 | 40 | 36 |
| Utilities | -0.13% | 0.70 | 11 | 18 |
| Energy | 1.25% | 0.65 | 20 | 19 |
| Health Care | -0.35% | 0.49 | 16 | 26 |
| Materials | -2.32% | 0.40 | 10 | 14 |
| Industrials | -2.02% | 0.34 | 19 | 28 |
| S&P 500 | 0.41% | 1.29 | 215 | 206 |
The Zacks Revisions Ratio: 2010
- Overall picture for 2010 similar to that of 2009
- Revisions ratio up to 1.34 from 1.25
- Tech and Consumer sectors showing best estimate momentum for 2010
- Health Care and Utilities getting cut
- Ratio of rising to falling mean estimates rises to 1.30 from 1.19
- Total revisions activity nearing lows for the quarter
- Total number of revisions falls to 1,350 from 1,425 (-5.3%)
- Estimate increases falls to 774 from 791 (-2.1%), cuts fall to 576 from 634 (-9.1%)
The consumer Discretionary sector was strong mostly due to the Retailers. Among the standout performers were AutoZone (AZO - Analyst Report), Gap (GPS - Analyst Report) and Target (TGT - Snapshot Report).
| Sector | Avg. 4wk EPS Change (FY2) | Revisions Ratio | Firms With FY2 EPS Increase | Firms With FY2 EPS Decrease |
| Technology | 2.39% | 3.18 | 41 | 19 |
| Consumer Discr | 0.75% | 2.50 | 39 | 25 |
| Consumer Staples | 0.46% | 1.83 | 25 | 10 |
| Telecom | 0.00% | 1.67 | 4 | 5 |
| Energy | 2.05% | 1.41 | 25 | 13 |
| Financial Services | -3.06% | 0.99 | 36 | 34 |
| Utilities | 0.21% | 0.86 | 15 | 13 |
| Materials | 0.38% | 0.69 | 15 | 9 |
| Industrials | -1.24% | 0.58 | 18 | 28 |
| Health Care | -0.51% | 0.39 | 18 | 26 |
| S&P 500 | 0.03% | 1.34 | 236 | 182 |
Earnings Shares and P/Es
| Sector | 2008% | 2009% | 2010% | Market Cap % | P/E 2008 | P/E 2009 | P/E 2010 |
| Technology | 16.95% | 15.65% | 15.20% | 18.71% | 14.6 | 18.5 | 15.4 |
| Health Care | 16.09% | 18.25% | 16.11% | 13.35% | 11.0 | 11.3 | 10.4 |
| Cons Staple | 12.88% | 14.77% | 12.95% | 13.07% | 13.5 | 13.7 | 12.6 |
| Financials | -2.00% | 11.34% | 14.76% | 13.06% | nm | 17.8 | 11.1 |
| Energy | 23.12% | 11.07% | 12.92% | 12.39% | 7.1 | 17.3 | 12.0 |
| Industrials | 13.63% | 10.93% | 9.52% | 9.85% | 9.6 | 13.9 | 12.9 |
| Cons Disc. | 6.78% | 7.29% | 8.16% | 9.16% | 17.9 | 19.4 | 14.0 |
| Utilities | 4.45% | 5.15% | 4.52% | 3.92% | 11.7 | 11.8 | 10.8 |
| Telecom | 4.32% | 3.99% | 3.39% | 3.30% | 10.1 | 12.8 | 12.1 |
| Materials | 3.78% | 1.56% | 2.47% | 3.19% | 11.2 | 31.7 | 16.1 |
| S&P 500 | 100.00% | 100.00% | 100.00% | 100.00% | 13.3 | 15.5 | 12.5 |
Neil Malkin contributed significantly to this report.
Data in this report, unless stated otherwise, is through the close on Thursday 6/18/2009