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Key Points:
The second quarter earnings season was a very strong one. A total of 485 (97.0%) of the S&P 500 firms have by now reported. The median surprise so far is 6.12% and there have been 359 positive EPS surprises and only 83 disappointments (surprise ratio of 4.33). As for growth, the total net income of those 485 firms is 38.2% higher than it was a year ago. For those firms, that is down from the 47.4% growth they posted in the first quarter.
As far as the top line is concerned, the story is also upbeat. Positive surprises led disappointments by 287 to 170, or a surprise ratio of 1.69 and a median surprise of 1.06%. Total revenue is 11.0% higher, down from the 12.0% growth those same firms saw in the first quarter. However, there seems to be an asymmetrical response in the market. Firms are not being rewarded if they post a positive surprise, but are punished severely if they disappoint, particularly if they disappoint on the top line.
The remaining firms appear to be very different than those that have already reported, and are expected to show much slower growth, especially when it comes to earnings. But they are so few that they will not have much of an impact on the final numbers. The 15 firms that have not yet reported are expected to show a drop of -33.7% for earnings, and revenue decline of 13.7%. Almost all of that decline comes from a single firm, H&R Block (HRB - Analyst Report). Its weak showing is not going to move the needle much for the whole S&P 500, and when all is said and done, growth will be comfortably over 35%.
Third Quarter Outlook
Looking ahead to the third quarter, the comparisons continue to get tougher, and growth is expected to drop to 17.2%. For an economic recovery that seems to be very sluggish and lethargic, that is still very impressive. With 9.5% unemployment and very sluggish growth in median real wages, there are lots of reasons for the average American to complain. But for the business community to complain, they show themselves to be nothing but a bunch of spoiled crybabies.
For the full year, earnings are expected to grow 41.6% in 2010, with further growth of 15.0% in 2011. Next year we should once again set a new all time record high for S&P 500 earnings. That will be long before employment returns to record levels. Keep in mind that these results refer to the S&P 500, which are almost by definition "big businesses" -- many of which get a majority of their earnings from overseas.
Small businesses have not been faring as well, and have had a hard time getting access to capital. An effort to aid small businesses through a package of loans and tax cuts was recently blocked by a filibuster in the Senate, even though many of the senators that voted to prevent a final vote on the bill were co-sponsors of the legislation. Since small businesses are the principal drivers of job creation, one can only conclude that those U.S. senators want to keep unemployment as high as possible, at least through November.
It is important to note, that when we say “2009” in this report, we mean the last full fiscal year to be reported, even if that year happens to end in June 2010. June is one of the largest non-December fiscal year-end months. Thus, as those firms “switch over” not only the projections for 2010 can change, but so too can the “historical 2009” results.
Earnings to Fully Recover by 2011
Regardless of some of the technical timing issues, it means that earnings will have fully recovered by mid-2011, and that full-year 2011 earnings will be 9.0% above full-year 2007 earnings (before the Great Recession started).
That is years before we are likely to see a full recovery in the job market. Collectively, the 500 firms in the S&P 500 earned $548.5 billion in “2009,” and that is going to grow to $776.8 billion this year and $892.3 billion in 2011. Translated into “EPS” for the index, earnings are expected to rise from $57.83 in 2009 to $82.11 in 2010 and $94.35 in 2011.
In other words, then, the S&P 500 is selling for 18.6x 2009 earnings, but just 13.1x 2010 and 11.4x 2011 earnings. By historical standards, that is quite cheap. Normally, when interest rates and inflation are low, P/E ratios are higher than average. Well we currently have some of the lowest rates of inflation in decades and interest rates are at near record lows.
It only costs the government 2.57% to borrow for 10 years. It is not hard to find good solid blue chip companies that are providing dividend yields of more than that, and not just a bunch of electric utilities, either.
One thing is certain, the coupon on a 10-year T-note will not increase over the next 10 years. The odds of the likes of Johnson & Johnson (JNJ - Analyst Report, 3.68%), Chevron (CVX - Analyst Report, 3.84%) or DuPont (DD - Analyst Report, 4.07%) increasing their dividend in the next 10 years is pretty high. Currently 149 S&P 500 stocks yield over 2.57%, and 98 of those have payout ratios of less than 60%. Earnings that are not paid out in dividends are reinvested for future growth, or are used to buy back stock, which also lifts earnings per share. Based on this year’s earnings, the earnings yield is 7.63%, and based on next year it is 8.77%.
Big Uncertainties Remain
There is still substantial uncertainty about the strength of the economy. The inventory rebuild cycle is just about over, and the effects of the stimulus are wearing off. State and local governments are facing massive budget shortfalls, and will be forced to lay off many municipal workers like teachers and police. This has kept investor sentiment very muted, but provides a big wall of worry for the market to climb.
The time to buy is when others are despondently selling, and the time to sell is when others are greedily buying. This is particularly true when the actual fundamentals are solid and when the market is simply depressed. There is nothing more fundamental than earnings (OK, perhaps the balance sheets, but those look better than they have in decades as well, with about $1.8 trillion in cash sitting on them) and earnings look pretty good, or at least the expectations for them do. Over the next few weeks we will see if those expectations are rational or not.
The key to the bear case based on the earnings data is that the revisions ratios dropped very sharply during the period between earnings seasons. But now that the pace of revisions activity is picking up in response to earnings, so are the revisions ratios, but the response is muted relative to what to what we saw in the first quarter earnings season. This is particularly true for 2011. The revisions ratios now stand at 1.97 for 2010 and 1.32 for 2011.
There is a “mechanical” reason for the 2010 estimates to increase in response to a second quarter positive earnings surprise. If the full year estimates do not at least reflect the amount of the surprise, implicitly the analysts are cutting their estimates for the third and fourth quarters. There is no such “mechanical” effect for 2011 estimates. This extremely strong earnings season in terms of surprises should be leading to a very high revisions ratio, especially for 2010, but normally that has been true for the next fiscal year as well.
Scorecard & Earnings Surprise
Sales Surprises
Reported Quarterly Growth: Total Net Income
The first table shows the actual reported growth of those that have already reported, and the second table shows the expected growth for the firms that have yet to report.
Expected Quarterly Growth: Total Net Income
Quarterly Growth: Total Revenues Reported
The first table shows the growth actually reported, and the second table shows the expectations for the majority of firms that have yet to report.
Quarterly Growth: Total Revenues Expected
The table shows the growth expected for the second and third quarters for those firms that have not yet reported. This small minority of firms will not have much of an effect on the final numbers.
Annual Total Net Income Growth
Annual Total Revenue Growth
Revisions: Earnings
The Zacks Revisions Ratio: 2010
Revisions: Earnings
The Zacks Revisions Ratio: 2011
Total Income and Share
P/E Ratios
Biggest FY1 Revisions
The table below shows the S&P 500 firms with the biggest increases in their FY1 (mostly 2010) mean estimate over the last 4 weeks. To qualify, the current mean estimate has to be greater than $0.50, and there must be more than 3 estimates for FY1. In addition to the change in the mean estimate, the net percentage of estimates being raised is shown for both FY1 and FY2, as well as the P/E ratios based on each year’s earnings is shown.
Note that estimate momentum and value are not mutually exclusive, and that two of the firms with the biggest positive estimate momentum have single digit P/Es based on FY1 earnings. The most interesting of these firms will be where the net revisions percentage (#up-#dn/Tot) is more than 0.50 but less than 1.00. Big mean estimate changes based on a handful of individual revisions are suspect, but could prove to be the most interesting if other analysts follow suit. On the other hand, if all the analysts have raised their estimates already, the mean estimate is less likely to rise again over the next month.
Data in this report, unless stated otherwise, is through the close on Thursday 8/19/2010.
We use the convention of referring to the next full fiscal year to be completed as 2010, not all firms are on December fiscal years, this can cause discontinuities in the data, particularly around this time of year. The data is based on FY1, not based on 2010, even though I may call it 2010 in the report. All numbers, including historical ones, reflect the current composition of the S&P 500, thus some historical numbers may differ from those reported by S&P which are based on the composition of the index at the time of the reports.
- Second quarter earnings season shaping up as a very strong one. So far, 97.0% of S&P 500 firms have reported (485). Surprise ratio 4.33 with a 6.12% median surprise. 74.0% of all firms beat expectations. Total net income grows 38.2%.
- Sales Surprise ratio at 1.69, median surprise 1.06%, 59.2% of all firms do better than expected on top line. Total revenue growth 11.0%.
- Reported Earnings growth among the reported down from to the 47.4% those firms reported in first quarter, slowdown to 17.2% growth expected for third quarter. Revenue growth slightly lower than 12.0% first quarter level. Revenue slowdown to 3.9% growth expected for third quarter.
- Total net income for the firms yet to report is expected to be 33.7% below second quarter of 2009 levels, and a slowdown from the 4.4% growth those same firms had in the first quarter. A rebound to 17.5% growth is expected in the third quarter, but they are so few that they will not have a material impact on totals for the quarter.
- Total revenue for those yet to report expected to fall 13.7%, down from the 7.2% growth the same firms reported in the first quarter. Revenue growth expected to rise to 13.4% in the third quarter.
- Total earnings for the S&P 500 expected to jump 41.6% in 2010, 15.0% further in 2011.
- Autos, Finance, Basic Materials, and Energy expected to be earnings growth leaders in 2010. Construction expected to move from the red to the black. No sector expected to see earnings decline in 2010.
- Total revenues for the S&P 500 expected to rise 4.5% in 2010, 6.1% in 2011.
- Given 12.0% (historic) revenue growth in first quarter, and 11.0% and 3.8% expectations for second quarter and third quarters, there is an implied slowdown in the fourth quarter (or possible increases in full-year estimates).
- Huge net margin expansion expected to continue in 2010 and 2011.
- Revisions ratio for full S&P 500 at 1.97 for 2010, at 1.32 for 2011, substantial improvement from last week. Ratio of firms with rising to falling mean estimates at 1.80 for 2010, 1.16 for 2011.
- S&P 500 firms earned a total of $548.5 billion in 2009, expected to earn $776.8 billion in 2010, $893.2 billion in 2011.
- S&P 500 earned $57.83 in 2009, $82.11 in 2010 and $94.35 in 2011 expected bottom-up. Puts P/Es at 18.6x for 2009, 13.1x for 2010, and 11.3x for 2011.
- Top-down estimates: $79.38 for 2010, $90.92 for 2011.
The second quarter earnings season was a very strong one. A total of 485 (97.0%) of the S&P 500 firms have by now reported. The median surprise so far is 6.12% and there have been 359 positive EPS surprises and only 83 disappointments (surprise ratio of 4.33). As for growth, the total net income of those 485 firms is 38.2% higher than it was a year ago. For those firms, that is down from the 47.4% growth they posted in the first quarter.
As far as the top line is concerned, the story is also upbeat. Positive surprises led disappointments by 287 to 170, or a surprise ratio of 1.69 and a median surprise of 1.06%. Total revenue is 11.0% higher, down from the 12.0% growth those same firms saw in the first quarter. However, there seems to be an asymmetrical response in the market. Firms are not being rewarded if they post a positive surprise, but are punished severely if they disappoint, particularly if they disappoint on the top line.
The remaining firms appear to be very different than those that have already reported, and are expected to show much slower growth, especially when it comes to earnings. But they are so few that they will not have much of an impact on the final numbers. The 15 firms that have not yet reported are expected to show a drop of -33.7% for earnings, and revenue decline of 13.7%. Almost all of that decline comes from a single firm, H&R Block (HRB - Analyst Report). Its weak showing is not going to move the needle much for the whole S&P 500, and when all is said and done, growth will be comfortably over 35%.
Third Quarter Outlook
Looking ahead to the third quarter, the comparisons continue to get tougher, and growth is expected to drop to 17.2%. For an economic recovery that seems to be very sluggish and lethargic, that is still very impressive. With 9.5% unemployment and very sluggish growth in median real wages, there are lots of reasons for the average American to complain. But for the business community to complain, they show themselves to be nothing but a bunch of spoiled crybabies.
For the full year, earnings are expected to grow 41.6% in 2010, with further growth of 15.0% in 2011. Next year we should once again set a new all time record high for S&P 500 earnings. That will be long before employment returns to record levels. Keep in mind that these results refer to the S&P 500, which are almost by definition "big businesses" -- many of which get a majority of their earnings from overseas.
Small businesses have not been faring as well, and have had a hard time getting access to capital. An effort to aid small businesses through a package of loans and tax cuts was recently blocked by a filibuster in the Senate, even though many of the senators that voted to prevent a final vote on the bill were co-sponsors of the legislation. Since small businesses are the principal drivers of job creation, one can only conclude that those U.S. senators want to keep unemployment as high as possible, at least through November.
It is important to note, that when we say “2009” in this report, we mean the last full fiscal year to be reported, even if that year happens to end in June 2010. June is one of the largest non-December fiscal year-end months. Thus, as those firms “switch over” not only the projections for 2010 can change, but so too can the “historical 2009” results.
Earnings to Fully Recover by 2011
Regardless of some of the technical timing issues, it means that earnings will have fully recovered by mid-2011, and that full-year 2011 earnings will be 9.0% above full-year 2007 earnings (before the Great Recession started).
That is years before we are likely to see a full recovery in the job market. Collectively, the 500 firms in the S&P 500 earned $548.5 billion in “2009,” and that is going to grow to $776.8 billion this year and $892.3 billion in 2011. Translated into “EPS” for the index, earnings are expected to rise from $57.83 in 2009 to $82.11 in 2010 and $94.35 in 2011.
In other words, then, the S&P 500 is selling for 18.6x 2009 earnings, but just 13.1x 2010 and 11.4x 2011 earnings. By historical standards, that is quite cheap. Normally, when interest rates and inflation are low, P/E ratios are higher than average. Well we currently have some of the lowest rates of inflation in decades and interest rates are at near record lows.
It only costs the government 2.57% to borrow for 10 years. It is not hard to find good solid blue chip companies that are providing dividend yields of more than that, and not just a bunch of electric utilities, either.
One thing is certain, the coupon on a 10-year T-note will not increase over the next 10 years. The odds of the likes of Johnson & Johnson (JNJ - Analyst Report, 3.68%), Chevron (CVX - Analyst Report, 3.84%) or DuPont (DD - Analyst Report, 4.07%) increasing their dividend in the next 10 years is pretty high. Currently 149 S&P 500 stocks yield over 2.57%, and 98 of those have payout ratios of less than 60%. Earnings that are not paid out in dividends are reinvested for future growth, or are used to buy back stock, which also lifts earnings per share. Based on this year’s earnings, the earnings yield is 7.63%, and based on next year it is 8.77%.
Big Uncertainties Remain
There is still substantial uncertainty about the strength of the economy. The inventory rebuild cycle is just about over, and the effects of the stimulus are wearing off. State and local governments are facing massive budget shortfalls, and will be forced to lay off many municipal workers like teachers and police. This has kept investor sentiment very muted, but provides a big wall of worry for the market to climb.
The time to buy is when others are despondently selling, and the time to sell is when others are greedily buying. This is particularly true when the actual fundamentals are solid and when the market is simply depressed. There is nothing more fundamental than earnings (OK, perhaps the balance sheets, but those look better than they have in decades as well, with about $1.8 trillion in cash sitting on them) and earnings look pretty good, or at least the expectations for them do. Over the next few weeks we will see if those expectations are rational or not.
The key to the bear case based on the earnings data is that the revisions ratios dropped very sharply during the period between earnings seasons. But now that the pace of revisions activity is picking up in response to earnings, so are the revisions ratios, but the response is muted relative to what to what we saw in the first quarter earnings season. This is particularly true for 2011. The revisions ratios now stand at 1.97 for 2010 and 1.32 for 2011.
There is a “mechanical” reason for the 2010 estimates to increase in response to a second quarter positive earnings surprise. If the full year estimates do not at least reflect the amount of the surprise, implicitly the analysts are cutting their estimates for the third and fourth quarters. There is no such “mechanical” effect for 2011 estimates. This extremely strong earnings season in terms of surprises should be leading to a very high revisions ratio, especially for 2010, but normally that has been true for the next fiscal year as well.
Scorecard & Earnings Surprise
- With 97% of reports in, it has been a very strong earnings season. A total of 485 of firms have reported. The surprise ratio is 4.33 with a 6.12% median surprise. Total net income is 38.2% higher than last year.
- Transports, Conglomerates and Business Service have yet to record a disappointment this season. Autos and Discretionary post double digit median surprises. No sector has more disappointments than positive surprises.
- 74.0% of all firms post positive surprises; 77.7% post higher EPS than last year.
- Historically, a “normal earnings season” will have a surprise ratio of about 3:1 and a median surprise of about 3.0%. Thus, this is a very positive earnings season. This is a big enough sample that it would be highly unusual for things to turn around and have the remaining firms turn around an on balance disappoint.
| Income Surprises | Yr/Yr Growth | % Reported | Surprise Median | EPS Surp Pos | EPS Surp Neg | # Grow Pos | # Grow Neg |
| Auto | 808.63% | 100.00% | 37.73 | 5 | 1 | 6 | 0 |
| Consumer Discretionary | 25.37% | 94.12% | 12.38 | 27 | 3 | 26 | 6 |
| Transportation | 73.88% | 100.00% | 9.09 | 8 | 0 | 9 | 0 |
| Conglomerates | -1.81% | 100.00% | 8.82 | 8 | 0 | 7 | 2 |
| Oils and Energy | 95.39% | 95.00% | 7.77 | 29 | 9 | 28 | 10 |
| Computer and Tech | 59.34% | 94.44% | 7.69 | 46 | 13 | 60 | 8 |
| Finance | 40.60% | 100.00% | 7.18 | 61 | 13 | 55 | 22 |
| Industrial Products | 60.93% | 90.00% | 6.98 | 16 | 2 | 14 | 4 |
| Utilities | 6.87% | 100.00% | 6.90 | 30 | 11 | 28 | 14 |
| Consumer Staples | 7.06% | 94.59% | 6.06 | 27 | 6 | 27 | 8 |
| Aerospace | -1.73% | 100.00% | 5.32 | 8 | 2 | 5 | 5 |
| Construction | 1060.00% | 100.00% | 5.00 | 7 | 1 | 9 | 2 |
| Basic Materials | 114.14% | 100.00% | 4.92 | 15 | 6 | 21 | 2 |
| Business Service | 20.01% | 94.74% | 3.75 | 14 | 0 | 15 | 3 |
| Medical | 17.64% | 95.74% | 3.20 | 37 | 5 | 36 | 9 |
| Retail/Wholesale | 16.44% | 95.45% | 0.44 | 21 | 11 | 31 | 11 |
| S&P | 38.23% | 97.00% | 6.12 | 359 | 83 | 377 | 106 |
Sales Surprises
- Sales Surprise ratio at 1.69, median surprise 1.06%; 59.2% of all firms do better than expected on top line.
- More firms report growing than shrinking revenues, ratio 3.61:1 -- 78.1% of all firms report higher revenues than a year ago.
- Revenue growth healthy at 11.0% but still greatly lags earnings growth pointing to net margin expansion.
- Autos and Transports have perfect records of no sales disappointments so far.
- Utilities and Aerospace have more disappointers than positive revenue surprises.
| Sales Surprises | Yr/Yr Growth | % Reported | Surprise Median | Sales Surp Pos | Sales Surp Neg | # Grow Pos | # Grow Neg |
| Auto | 26.09% | 100.00% | 6.33 | 6 | 0 | 6 | 0 |
| Construction | 7.90% | 100.00% | 3.16 | 7 | 4 | 7 | 4 |
| Consumer Discretionary | 7.97% | 94.12% | 2.37 | 22 | 10 | 27 | 5 |
| Conglomerates | 2.17% | 100.00% | 2.32 | 6 | 2 | 7 | 2 |
| Transportation | 20.20% | 100.00% | 2.12 | 9 | 0 | 9 | 0 |
| Computer and Tech | 22.18% | 94.44% | 2.02 | 49 | 19 | 61 | 7 |
| Industrial Products | 18.43% | 90.00% | 1.59 | 12 | 7 | 17 | 2 |
| Business Service | 7.56% | 94.74% | 1.47 | 14 | 4 | 14 | 2 |
| Finance | 3.74% | 101.30% | 1.28 | 36 | 15 | 48 | 30 |
| Medical | 10.34% | 95.74% | 1.03 | 29 | 16 | 36 | 9 |
| Oils and Energy | 27.63% | 95.00% | 0.79 | 21 | 17 | 34 | 4 |
| Basic Materials | 18.54% | 100.00% | 0.73 | 13 | 10 | 21 | 2 |
| Retail/Wholesale | 5.73% | 95.45% | 0.14 | 24 | 18 | 36 | 6 |
| Consumer Staples | 7.48% | 94.59% | 0.14 | 18 | 17 | 24 | 11 |
| Utilities | 0.60% | 100.00% | -0.87 | 18 | 24 | 25 | 18 |
| Aerospace | -2.25% | 100.00% | -1.00 | 3 | 7 | 7 | 3 |
| S&P | 11.00% | 97.00% | 1.06 | 287 | 170 | 379 | 105 |
Reported Quarterly Growth: Total Net Income
The first table shows the actual reported growth of those that have already reported, and the second table shows the expected growth for the firms that have yet to report.
- The total net income of firms that have reported so far is 38.2% above what they reported in the second quarter of 2009. These same firms reported year-over-year growth of 47.4% in the first quarter. Sequential earnings growth is 6.56%.
- Seven sectors posting growth of more than 50%. Construction, Autos and Materials earnings more than double. Only Aerospace and Conglomerates have a lower net income this year than last. Cyclical sectors do well.
- Reporting firms expected to show growth slowing to 17.2% in the third quarter year over year (tougher comp). Earnings expected to drop 5.3% sequentially.
- The numbers in the table (and Revenue growth table) below only refer to those firms which have already reported. Refer back to the % reporting in the scorecard to assess the significance of the sector growth numbers.
| Income Growth | Sequential Q3/Q2 E | Sequential Q2/Q1 A | Year over Year 2Q 10 A | Year over Year 3Q 10 E | Year over Year 1Q 09 A |
| Construction | -19.75% | 138.36% | 1060.00% | 1495.86% | 176.04% |
| Auto | -39.36% | 34.54% | 808.63% | 42.38% | 230.82% |
| Basic Materials | -19.36% | 1.22% | 114.14% | 31.74% | 177.01% |
| Oils and Energy | -7.13% | 15.27% | 95.39% | 41.67% | 65.62% |
| Transportation | -1.47% | 45.61% | 73.88% | 54.75% | 43.66% |
| Industrial Products | -8.73% | 65.56% | 60.93% | 23.22% | 47.64% |
| Computer and Tech | -1.75% | 15.66% | 59.34% | 41.16% | 63.20% |
| Finance | -14.78% | -0.16% | 40.60% | 14.94% | 102.38% |
| Consumer Discretionary | 3.70% | 11.44% | 25.37% | 2.54% | 47.06% |
| Business Service | 2.22% | 5.66% | 20.01% | 14.60% | 14.34% |
| Medical | -7.52% | 1.70% | 17.64% | 3.80% | 15.22% |
| Retail/Wholesale | 0.57% | -21.32% | 16.44% | -2.35% | 20.27% |
| Consumer Staples | 1.79% | 10.60% | 7.06% | 1.10% | 21.92% |
| Utilities | 16.93% | -6.60% | 6.87% | 2.34% | 1.01% |
| Aerospace | -3.94% | 18.77% | -1.73% | 141.67% | -5.84% |
| Conglomerates | -5.30% | 24.22% | -1.81% | -5.44% | 7.23% |
| S&P | -5.26% | 6.56% | 38.23% | 17.51% | 47.37% |
Expected Quarterly Growth: Total Net Income
- Total net income for the small minority that have yet to report is expected to be -33.7 above second quarter of 2009 levels, 20.1% below first quarter 2010 levels.
- Slowdown from the 4.4% growth those same firms had in the first quarter. A further slowdown to 15.9% growth expected in the third quarter. Comparisons get tougher as we move forward.
- No sector has more than three firms remaining, the total drop in earnings is attributable to a single firm, H&R Block (HRB - Analyst Report).
- With so few earnings reports remaining, the lower expected growth should have only a modest lowering effect on the whole S&P 500’s growth. Total growth should top 35% when all firms are in.
| Income Growth | Sequential Q3/Q2 E | Sequential Q2/Q1 E | Year over Year 2Q 10 E | Year over Year 3Q 10 E | Year over Year 1Q 10 A |
| Computer and Tech | 24.91% | 5.45% | 442.29% | 216.11% | - to + |
| Industrial Products | -27.22% | 50.03% | 50.03% | -20.87% | 11.11% |
| Business Service | 9.91% | 2.88% | 8.15% | 11.26% | 3.36% |
| Consumer Staples | 56.91% | -26.96% | 6.44% | 64.00% | 5.34% |
| Medical | 3.60% | 2.85% | -3.19% | 4.83% | 7.67% |
| Retail/Wholesale | -16.25% | -32.88% | -31.93% | -15.51% | -6.34% |
| Consumer Discretionary | 1.47% | - to - | + to - | 0.54% | -19.40% |
| Auto | Na | Na | Na | Na | Na |
| Basic Materials | Na | Na | Na | Na | Na |
| Construction | Na | Na | Na | Na | Na |
| Conglomerates | Na | Na | Na | Na | Na |
| Aerospace | Na | Na | Na | Na | Na |
| Oils and Energy | Na | Na | Na | Na | Na |
| Finance | Na | Na | Na | Na | Na |
| Utilities | Na | Na | Na | Na | Na |
| Transportation | Na | Na | Na | Na | Na |
| S&P | 13.28% | -20.13% | -33.66% | 17.30% | 4.39% |
Quarterly Growth: Total Revenues Reported
The first table shows the growth actually reported, and the second table shows the expectations for the majority of firms that have yet to report.
- S&P 500 reported revenues up 11.0% year over year in 2Q, down from 12.0% revenue increase the same firms showed in the 1Q. This is a very healthy level of revenue growth.
- Seven sectors seeing double digit revenue growth, with four over 20%. Energy gains tied to higher oil prices than last year. Auto, Tech and Transports also over 20% revenue growth. Materials and Industrials over 18%.
- Only Aerospace shows negative revenue growth.
| Sales Growth | Sequential Q3/Q2 E | Sequential Q2/Q1 A | Year over Year 2Q 10 A | Year over Year 3Q 10 E | Year over Year 1Q 09 A |
| Oils and Energy | 4.07% | 5.30% | 27.63% | 19.71% | 35.54% |
| Auto | -8.56% | 9.95% | 26.09% | -1.58% | 24.20% |
| Computer and Tech | 10.13% | 6.70% | 22.18% | 20.57% | 16.62% |
| Transportation | 4.11% | 8.51% | 20.20% | 16.38% | 10.54% |
| Basic Materials | -2.86% | 4.55% | 18.54% | 12.59% | 19.87% |
| Industrial Products | -3.07% | 19.51% | 18.43% | 18.46% | 2.68% |
| Medical | 2.42% | 1.26% | 10.34% | 9.11% | 11.78% |
| Consumer Discretionary | 10.08% | 5.04% | 7.97% | 3.27% | 6.65% |
| Construction | -6.10% | 16.03% | 7.90% | 2.38% | -4.60% |
| Business Service | 5.96% | 2.97% | 7.56% | 6.03% | 5.33% |
| Consumer Staples | -4.77% | 8.64% | 7.48% | -2.09% | 9.57% |
| Retail/Wholesale | 13.90% | -8.17% | 5.73% | 2.30% | 4.88% |
| Finance | -21.03% | -3.48% | 3.74% | -21.48% | 13.64% |
| Conglomerates | 5.83% | 6.24% | 2.17% | 2.41% | 0.05% |
| Utilities | 5.31% | -10.59% | 0.60% | 1.95% | 1.58% |
| Aerospace | 9.76% | 3.79% | -2.25% | 2.89% | -2.14% |
| S&P | -2.23% | 0.90% | 11.00% | 3.87% | 12.02% |
Quarterly Growth: Total Revenues Expected
The table shows the growth expected for the second and third quarters for those firms that have not yet reported. This small minority of firms will not have much of an effect on the final numbers.
- Total revenue for those yet to report expected fall 13.65%, versus positive growth of 7.23% the same firms reported in the first quarter.
- Revenue growth for entire S&P 500 should be in double digits when all firms are in.
| Sales Growth | Sequential Q3/Q2 E | Sequential Q2/Q1 E | Year over Year 2Q 10 E | Year over Year 3Q 10 E | Year over Year 1Q 10 A |
| Computer and Tech | 4.01% | 12.17% | 21.75% | 24.71% | 7.66% |
| Industrial Products | -16.05% | 20.18% | 21.04% | -11.50% | 3.13% |
| Business Service | 3.94% | 6.00% | 7.36% | 5.67% | 6.55% |
| Medical | 0.77% | 2.87% | 4.25% | 3.13% | 8.50% |
| Consumer Staples | 19.82% | -14.53% | -0.77% | 20.72% | 7.07% |
| Retail/Wholesale | -1.53% | -1.88% | -15.78% | 12.63% | 7.86% |
| Consumer Discretionary | 17.10% | -71.23% | -89.10% | 237.32% | -5.84% |
| Auto | Na | Na | Na | Na | Na |
| Basic Materials | Na | Na | Na | Na | Na |
| Construction | Na | Na | Na | Na | Na |
| Conglomerates | Na | Na | Na | Na | Na |
| Aerospace | Na | Na | Na | Na | Na |
| Oils and Energy | Na | Na | Na | Na | Na |
| Finance | Na | Na | Na | Na | Na |
| Utilities | Na | Na | Na | Na | Na |
| Transportation | Na | Na | Na | Na | Na |
| S&P | 2.20% | -3.92% | -13.65% | 13.44% | 7.23% |
Annual Total Net Income Growth
- Total S&P 500 Net Income in 2009 was 1.6% above 2008 levels, following the 34.1% plunge in 2008. We follow the convention where we are calling the last full fiscal year to be reported “2009” and the next full year to be reported “2010." Thus when some off-fiscal year firms finish their fiscal years and report, it can “change history."
- Total earnings for the S&P 500 expected to jump 41.6% in 2010, 15.0% further in 2011.
- Earnings recovery to happen by mid-2011, full-year 2011 earnings to be 9.1% above 2007 levels. In other words, the recovery in earnings will occur far before the recovery in jobs, as we are unlikely to return to 2007 job levels until late 2013 at the earliest.
- Autos, Finance, Basic Materials and Energy expected to be earnings growth leaders in 2010. Construction expected to move from the red to the black. No sector expected to see earnings decline in 2010.
- Four sectors expected to see growth over 20% in 2011, 13 in double digits.
- Despite strong growth in both 2010 and 2011, Energy earnings in 2011 expected to be 23.3% below 2008 levels.
| EPS Growth | 2008 | 2009 | 2010 | 2011 |
| Construction | - to + | - to - | - to + | 31.50% |
| Auto | - to + | - to + | 1875.18% | 18.12% |
| Finance | - to + | - to + | 309.49% | 25.10% |
| Basic Materials | -4.83% | -49.85% | 64.76% | 23.94% |
| Oils and Energy | 22.98% | -56.56% | 51.04% | 17.25% |
| Computer and Tech | 15.03% | -4.27% | 43.51% | 12.75% |
| Transportation | 1.20% | -30.04% | 39.11% | 19.99% |
| Industrial Products | 5.39% | -36.71% | 34.56% | 21.75% |
| Consumer Discretionary | 6.35% | -15.81% | 21.80% | 15.54% |
| Aerospace | 13.20% | -14.87% | 14.46% | 11.60% |
| Business Service | 24.83% | 1.09% | 14.06% | 15.39% |
| Retail/Wholesale | 1.42% | 2.62% | 13.17% | 12.55% |
| Consumer Staples | -7.61% | 5.62% | 10.68% | 9.09% |
| Medical | 9.32% | 2.21% | 6.56% | 7.67% |
| Utilities | -1.26% | -13.57% | 1.91% | 6.97% |
| Conglomerates | -10.97% | -23.89% | 0.08% | 16.03% |
| S&P | -34.08% | 1.61% | 41.64% | 14.98% |
Annual Total Revenue Growth
- Total S&P 500 revenue in 2009 6.75% below 2008 levels.
- Total revenues for the S&P 500 expected to rise 4.46% in 2010, 6.10% in 2011.
- Given 12.2% (historic) revenue growth in first quarter, and 10.9% and 3.9% expectations for second quarter and third quarters (weighted average of reported and yet to report), implies a slowdown in the fourth quarter (or increases in full-year estimates).
- However, quarterly revenue estimates are thinner (fewer estimates in the consensus) than annual ones.
- Energy to lead 2010 revenue race, Tech and Transports to take silver and bronze, but Materials and Industrials have a chance to make it onto the medal stand.
- Financials the biggest drag on 2010 revenue growth, Staples only other sector expected to post lower top line for the year. Revenues for Financials are notoriously flakey -- low interest rates depress interest income (but also interest expense).
- Medical, Retail and Aerospace only sectors to have positive revenue growth for all three years.
- Looking out to 2011, Energy is the only sector expected to see double-digit revenue growth, although four other sectors expected to have revenue growth over 8%.
| Sales Growth | 2009 | 2010 | 2011 |
| Oils and Energy | -34.45% | 21.53% | 12.90% |
| Computer and Tech | -6.22% | 17.46% | 8.54% |
| Transportation | -13.65% | 13.43% | 8.16% |
| Basic Materials | -19.30% | 12.70% | 7.57% |
| Industrial Products | -19.55% | 12.55% | 9.87% |
| Medical | 6.06% | 9.27% | 3.19% |
| Business Service | -2.35% | 5.90% | 5.96% |
| Consumer Discretionary | -9.55% | 5.86% | 5.26% |
| Retail/Wholesale | 1.25% | 4.57% | 5.41% |
| Utilities | -5.87% | 4.53% | 2.33% |
| Auto | -21.36% | 3.14% | 9.79% |
| Conglomerates | -13.19% | 1.13% | 1.81% |
| Aerospace | 6.30% | 0.50% | 6.28% |
| Construction | -15.92% | 0.32% | 7.66% |
| Consumer Staples | -2.13% | -2.21% | 4.32% |
| Finance | 21.18% | -19.83% | 2.29% |
| S&P | -6.75% | 4.46% | 6.10% |
Revisions: Earnings
The Zacks Revisions Ratio: 2010
- Revisions ratio for full S&P 500 at 1.97, down from 2.02 last week -- still very positive.
- Transports and Autos strong, reflecting big positive surprises.
- Only Construction seeing more cuts than increases (barely).
- Ratio of firms with rising to falling mean estimates at 1.80 up from 1.78 last week, a positive reading.
- Total number of revisions (4 week total) down to 4,965 from 5,187 (-4.3%).
- Increases down to 3,291 from 3,468 (-5.1%), cuts down to 1,674 from 1,719 (-2.6%).
- Total Revisions activity passed seasonal peak, will plunge by more than 60% over the next month. As it does, changes in the revisions ratios will be driven by estimates falling out more than by new estimates.
| Sector | %Ch Curr Fiscal Yr Est - 4 wks | # Firms Up | # Firms Down | # Ests Up | # Ests Down | Revisions Ratio | Firms up/down |
| Transportation | 4.23 | 8 | 0 | 125 | 6 | 20.83 | 999.99 |
| Auto | 24.00 | 5 | 1 | 54 | 8 | 6.75 | 5.00 |
| Industrial Products | 2.96 | 16 | 3 | 139 | 31 | 4.48 | 5.33 |
| Consumer Discretionary | 0.73 | 22 | 10 | 236 | 62 | 3.81 | 2.20 |
| Conglomerates | -1.14 | 5 | 3 | 62 | 21 | 2.95 | 1.67 |
| Computer and Tech | 2.38 | 41 | 22 | 488 | 201 | 2.43 | 1.86 |
| Utilities | 0.03 | 28 | 15 | 241 | 100 | 2.41 | 1.87 |
| Medical | 0.43 | 27 | 19 | 334 | 149 | 2.24 | 1.42 |
| Finance | 3.74 | 53 | 25 | 617 | 314 | 1.96 | 2.12 |
| Aerospace | -0.90 | 6 | 4 | 78 | 41 | 1.90 | 1.50 |
| Business Service | 1.27 | 13 | 4 | 109 | 68 | 1.60 | 3.25 |
| Basic Materials | -3.53 | 13 | 9 | 104 | 74 | 1.41 | 1.44 |
| Oils and Energy | 0.34 | 23 | 16 | 283 | 211 | 1.34 | 1.44 |
| Consumer Staples | 0.05 | 21 | 13 | 149 | 117 | 1.27 | 1.62 |
| Retail/Wholesale | 1.23 | 20 | 22 | 215 | 212 | 1.01 | 0.91 |
| Construction | -4.24 | 6 | 5 | 57 | 59 | 0.97 | 1.20 |
| S&P | 1.39 | 307 | 171 | 3291 | 1674 | 1.97 | 1.80 |
Revisions: Earnings
The Zacks Revisions Ratio: 2011
- Revisions ratio for full S&P 500 at 1.32 up from 1.31, now in positive territory.
- Transportation and Autos have very high revisions ratios, almost no cuts.
- Industrials, Discretionary, Conglomerates and Tech also strong with more than 2 increases per cut.
- Fourteen sectors with positive revisions ratios, Only Retail and Construction with ratios below 1.0.
- Ratio of firms with rising estimate to falling mean estimates at 1.16 up from 1.14; still a neutral reading.
- Construction sector looks very weak for 2011.
- Total number of revisions (4 week total) at 4,523, down from 4,775 (-5.3%).
- Increases down to 2,574 from 2,705 (-4.8%) cuts fall to 1,949 from 2,070 (-5.8%).
| Sector | %Ch Next Fiscal Yr Est - 4 wks | # Firms Up | # Firms Down | # Ests Up | # Ests Down | Revisions Ratio | Firms up/down |
| Transportation | 2.35 | 8 | 1 | 104 | 7 | 14.86 | 8.00 |
| Auto | 7.50 | 5 | 1 | 45 | 6 | 7.50 | 5.00 |
| Industrial Products | 1.38 | 15 | 5 | 124 | 35 | 3.54 | 3.00 |
| Consumer Discretionary | -5.58 | 22 | 10 | 194 | 67 | 2.90 | 2.20 |
| Conglomerates | -0.03 | 4 | 4 | 53 | 21 | 2.52 | 1.00 |
| Computer and Tech | 2.62 | 46 | 19 | 397 | 194 | 2.05 | 2.42 |
| Medical | 0.09 | 23 | 22 | 282 | 215 | 1.31 | 1.05 |
| Aerospace | -0.16 | 4 | 5 | 52 | 41 | 1.27 | 0.80 |
| Utilities | -0.88 | 18 | 25 | 165 | 142 | 1.16 | 0.72 |
| Business Service | 0.26 | 7 | 10 | 81 | 73 | 1.11 | 0.70 |
| Oils and Energy | -1.70 | 17 | 22 | 246 | 222 | 1.11 | 0.77 |
| Finance | -1.42 | 39 | 39 | 428 | 398 | 1.08 | 1.00 |
| Consumer Staples | -0.26 | 20 | 14 | 117 | 109 | 1.07 | 1.43 |
| Basic Materials | -0.10 | 11 | 12 | 89 | 85 | 1.05 | 0.92 |
| Retail/Wholesale | -0.50 | 19 | 24 | 166 | 241 | 0.69 | 0.79 |
| Construction | -17.54 | 1 | 10 | 31 | 93 | 0.33 | 0.10 |
| S&P | -0.68 | 259 | 223 | 2574 | 1949 | 1.32 | 1.16 |
Total Income and Share
- S&P 500 earned $548.5 billion in 2009, expected to earn $776.8 billion in 2010, $893.2 billion in 2011.
- Finance share of total earnings moves from 5.9% in 2009 to 17.0% in 2010, 18.5% in 2011, regains total earnings crown from Tech.
- Medical share of total earnings far exceeds market cap share (index weight), but earnings share expected to shrink from 17.4% in 2009 to 12.3% in 2011.
- Market Cap shares of Construction, Transportation, Industrials and Business Service sectors far exceed both 2010 and 2011 earnings shares.
| Sector | Total Net Income $ 2009 | Total Net Income $ 2010 | Total Net Income $ 2011 | % Total S&P Earn 2009 | % Total S&P Earn 2010 | % Total S&P Earn 2011 | % Total S&P Mkt Cap |
| Computer and Tech | $93,193 | $133,739 | $150,796 | 16.99% | 17.22% | 16.88% | 17.77% |
| Finance | $32,320 | $132,347 | $165,568 | 5.89% | 17.04% | 18.54% | 16.01% |
| Medical | $95,660 | $101,935 | $109,752 | 17.44% | 13.12% | 12.29% | 11.00% |
| Oils and Energy | $62,360 | $94,189 | $110,437 | 11.37% | 12.12% | 12.36% | 10.43% |
| Consumer Staples | $57,808 | $63,982 | $69,796 | 10.54% | 8.24% | 7.81% | 9.25% |
| Retail/Wholesale | $51,489 | $58,271 | $65,583 | 9.39% | 7.50% | 7.34% | 8.34% |
| Utilities | $49,544 | $50,489 | $54,007 | 9.03% | 6.50% | 6.05% | 6.56% |
| Consumer Discretionary | $23,442 | $28,553 | $32,990 | 4.27% | 3.68% | 3.69% | 4.35% |
| Conglomerates | $25,095 | $25,114 | $29,140 | 4.58% | 3.23% | 3.26% | 3.57% |
| Basic Materials | $13,468 | $22,189 | $27,502 | 2.46% | 2.86% | 3.08% | 3.21% |
| Aerospace | $13,296 | $15,218 | $16,984 | 2.42% | 1.96% | 1.90% | 1.77% |
| Industrial Products | $10,613 | $14,281 | $17,387 | 1.94% | 1.84% | 1.95% | 2.21% |
| Business Service | $11,726 | $13,375 | $15,434 | 2.14% | 1.72% | 1.73% | 2.11% |
| Transportation | $8,282 | $11,521 | $13,824 | 1.51% | 1.48% | 1.55% | 1.95% |
| Auto | $480 | $9,483 | $11,202 | 0.09% | 1.22% | 1.25% | 0.99% |
| Construction | ($324) | $2,146 | $2,823 | -0.06% | 0.28% | 0.32% | 0.50% |
| S&P 500 | $548,451 | $776,832 | $893,224 | 100.00% | 100.00% | 100.00% | 100.00% |
P/E Ratios
- Trading at 13.1x 2010, 11.4x 2011 earnings, or earnings yields of 7.63% and 8.77%, respectively.
- Earnings yields extremely attractive relative to 10-year T-Note rate of 2.58%.
- Autos have lowest P/E based on 2009 and 2010 earnings. Autos, Energy cheapest based on 2011 earnings.
- Construction has highest P/E for 2010 and 2011.
- Auto and Finance high 2009 P/Es to fall dramatically in 2010 and 2011.
- S&P 500 earned $57.83 in 2009: $82.11 in 2010 and $94.35 in 2011 expected.
| P/E | 2008 | 2009 | 2010 | 2011 |
| Auto | NM | 210.3 | 10.6 | 9.0 |
| Medical | 12.0 | 11.7 | 11.0 | 10.2 |
| Oils and Energy | 7.4 | 17.1 | 11.3 | 9.6 |
| Aerospace | 11.6 | 13.6 | 11.9 | 10.6 |
| Finance | NM | 50.5 | 12.3 | 9.9 |
| Utilities | 11.7 | 13.5 | 13.3 | 12.4 |
| Computer and Tech | 18.6 | 19.5 | 13.6 | 12.0 |
| Conglomerates | 11.1 | 14.5 | 14.5 | 12.5 |
| Retail/Wholesale | 17.0 | 16.5 | 14.6 | 13.0 |
| Basic Materials | 12.2 | 24.3 | 14.7 | 11.9 |
| Consumer Staples | 17.2 | 16.3 | 14.7 | 13.5 |
| Consumer Discretionary | 15.9 | 18.9 | 15.5 | 13.4 |
| Industrial Products | 13.4 | 21.2 | 15.8 | 13.0 |
| Business Service | 18.5 | 18.3 | 16.1 | 13.9 |
| Transportation | 16.8 | 24.0 | 17.2 | 14.4 |
| Construction | NM | NM | 23.7 | 18.0 |
| S&P 500 | 18.9 | 18.6 | 13.1 | 11.4 |
Biggest FY1 Revisions
The table below shows the S&P 500 firms with the biggest increases in their FY1 (mostly 2010) mean estimate over the last 4 weeks. To qualify, the current mean estimate has to be greater than $0.50, and there must be more than 3 estimates for FY1. In addition to the change in the mean estimate, the net percentage of estimates being raised is shown for both FY1 and FY2, as well as the P/E ratios based on each year’s earnings is shown.
Note that estimate momentum and value are not mutually exclusive, and that two of the firms with the biggest positive estimate momentum have single digit P/Es based on FY1 earnings. The most interesting of these firms will be where the net revisions percentage (#up-#dn/Tot) is more than 0.50 but less than 1.00. Big mean estimate changes based on a handful of individual revisions are suspect, but could prove to be the most interesting if other analysts follow suit. On the other hand, if all the analysts have raised their estimates already, the mean estimate is less likely to rise again over the next month.
| Company | Ticker | %Ch Curr Fiscal Yr Est - 4 wks | %Ch Next Fiscal Yr Est - 4 wks | # Up-Dn/Tot %Ch Curr Fiscal Yr Est - 4 wks | # Up-Dn/Tot %Ch Next Fiscal Yr Est - 4 wks | P/E using Curr FY Est | P/E using Next FY Est |
| Teradyne Inc | TER | 48.73% | 26.39% | 0.86 | 0.54 | 3.92 | 4.37 |
| Sunoco Inc | SUN | 36.97% | 4.53% | 0.69 | 0.38 | 19.41 | 13.96 |
| Ford Motor Co | F | 34.10% | 19.46% | 0.92 | 0.92 | 6.52 | 6.21 |
| Comerica Inc | CMA | 32.00% | -1.54% | 0.47 | 0.05 | 47.12 | 15.90 |
| Metropcs Commun | PCS | 30.31% | 19.28% | 0.72 | 0.62 | 14.12 | 10.57 |
| Cummins Inc | CMI | 26.96% | 17.95% | 0.93 | 0.88 | 16.14 | 12.43 |
| Capital One Fin | COF | 25.21% | 2.87% | 0.84 | 0.00 | 7.93 | 8.74 |
| Tellabs Inc | TLAB | 23.98% | 16.36% | 0.87 | 0.60 | 13.00 | 13.08 |
| Cb Richard Ells | CBG | 23.62% | 9.56% | 1.00 | 0.83 | 24.33 | 17.11 |
| Valero Energy | VLO | 19.48% | 1.17% | 0.55 | 0.17 | 11.29 | 7.42 |
| Eastman Chem Co | EMN | 19.28% | 12.71% | 1.00 | 0.91 | 9.45 | 9.09 |
| Kla-Tencor Corp | KLAC | 18.37% | 60.51% | 0.73 | 0.13 | 7.51 | 7.45 |
| Wynn Resrts Ltd | WYNN | 16.08% | 18.27% | 0.47 | 0.43 | 55.44 | 38.95 |
| Ameriprise Finl | AMP | 15.58% | 8.16% | 1.00 | 0.83 | 10.70 | 8.75 |
Data in this report, unless stated otherwise, is through the close on Thursday 8/19/2010.
We use the convention of referring to the next full fiscal year to be completed as 2010, not all firms are on December fiscal years, this can cause discontinuities in the data, particularly around this time of year. The data is based on FY1, not based on 2010, even though I may call it 2010 in the report. All numbers, including historical ones, reflect the current composition of the S&P 500, thus some historical numbers may differ from those reported by S&P which are based on the composition of the index at the time of the reports.
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
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