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Financials' Losses Grow Seven Fold
Key Points:
- Early reports (93 total) have been ugly with total net income 63.5% below year ago levels
- 22.5% firms to reporting so far have red ink
- 51.7% of Financials in the red; Financials red ink so far is almost 7x year ago levels
- Excluding Financials, total earnings are down 9.5%
- 4Q total net income expected to be 29.6% below year ago
- Estimate cuts running 6:1 over increases for both 2009 and 2010
- Total net income in 2009, now expected to be 2.5% below 2008; but in reality, profits will most likely be down much more (perhaps just move the decimal point)
- Bottom up estimate for S&P 500 now $71.34 in 2009, down from $72.41 on Tuesday and $73.62 a week ago; I expect it to be less than $60.
- P/Es based on 2009 estimates will prove to be to low as "E" plunges
- Trends are terrible, 2009 expectations fell 1.6% in 2 market days
Total Net Income Growth
- Early returns very ugly, the 93 companies that have reported are showing earnings of just $11.1B aggregate versus total earnings of $30.3B a year ago and $38.7B in the third quarter
- Excluding Financials, total net income down 15.5% from a year ago
- Energy, Materials and Discretionary all expected to be down over 40% in the fourth quarter
- Total net income expected to fall 29.6% in fourth quarter from a year ago; was -23.7% a week ago
- Negative year-to-year growth in 4Q now expected for six sectors
- Financials were expected to report high growth due to easy comps, but have gushed red ink in early going
- Full-year net income in 2009 expected to be down 1.7% from 2008 levels, following a 11.6% decline in 2008
- First-quarter total net income is now expected to be 15.1% below a year ago; was -13.7% on Thursday
- Early 2010 expectations looks for 19.6% growth over 2009
- Index changes mask size of earnings decline in 2008 (Merril, Wachovia, National City and AIG are gone)
| Sector | Q2 '08 A | Q3 '08 A | Q4 '08 A | Q1 '09 E | 2007 A | 2008 A | 2009 E | 2010 E |
| Energy | 16.10% | 18.26% | 15.19% | 3.89% | 72.71% | 28.36% | 12.90% | -1.86% |
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Industrials | 6.57% | 9.04% | 6.80% | -15.19% | 18.98% | 13.02% | -5.75% | 12.50% |
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Utilities | 0.70% | -14.02% | 2.57% | 14.13% | 29.56% | -5.97% | 1.70% | 8.66% |
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Health Care | 3.60% | 1.93% | 1.90% | -4.65% | 30.18% | 7.98% | 3.10% | 8.70% |
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Cons. Stap. | 11.41% | 2.99% | -1.47% | -9.96% | 12.21% | 4.68% | 4.56% | 7.50% |
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Technology | 26.23% | 16.53% | -16.42% | -19.66% | 19.14% | 20.06% | -5.63% | 18.63% |
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Cons. Disc. | -13.81% | 22.35% | -24.23% | -27.27% | -10.79% | 1.86% | -6.20% | 18.74% |
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Materials | 3.68% | -19.02% | -38.64% | -39.32% | 11.65% | -8.43% | -22.38% | 39.37% |
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Financials | -62.47% | -75.02% | -584.33% | -46.10% | -28.17% | -98.60% | 2663.39% | 85.54% |
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S&P | -24.87% | -25.49% | -63.53% | -21.88% | -6.74% | -33.77% | 19.60% | 29.28% |
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| Sector | Q4 '08 | Q4 '07 | Q3 '08 | Q3 '07 | |||
| Technology | $13,996 | $16,745 | $14,778 | $12,682 | |||
| Health Care | $6,275 | $6,157 | $6,420 | $6,299 | |||
| Industrials | $4,685 | $4,387 | $4,953 | $4,542 | |||
| Cons. Stap. | $1,623 | $1,647 | $1,528 | $1,483 | |||
| Cons. Disc. | $1,321 | $1,743 | $3,297 | $2,695 | |||
| Utilities | $907 | $884 | $975 | $1,134 | |||
| Materials | $710 | $1,157 | $925 | $1,142 | |||
| Energy | $419 | $363 | $389 | $329 | |||
| Financials | ($18,874) | ($2,758) | $5,389 | $21,570 | |||
| S&P | $11,060 | $30,325 | $38,653 | $51,876 | |||
| Sector | Q2 '08 A | Q3 '08 A | Q4 '08 E | Q1 '09 E | 2007 A | 2008 E | 2009 E | 2010 E |
| Financials | -42.76% | -109.71% | 35.73% | 30.68% | -4.68% | -51.11% | 42.11% | 16.49% |
| Utilities | 4.67% | -4.87% | 28.90% | -13.46% | 8.06% | 4.99% | 4.62% | 11.10% |
| Health Care | 10.73% | 8.85% | 8.74% | 2.42% | 16.62% | 7.59% | 6.97% | 9.63% |
| Cons. Stap. | 1.29% | 14.31% | 0.41% | 5.88% | 6.82% | 11.31% | 8.25% | 6.76% |
| Telecom | -1.11% | -15.97% | -16.34% | -7.80% | 18.24% | -4.98% | -3.54% | 5.62% |
| Industrials | 6.14% | -0.90% | -34.90% | -7.99% | 8.17% | -1.52% | -12.33% | 5.10% |
| Technology | 9.11% | -1.75% | -36.94% | -25.38% | 5.00% | 9.98% | -14.32% | 16.06% |
| Materials | 7.01% | 6.41% | -43.51% | -43.26% | 9.75% | -9.30% | -33.82% | 34.67% |
| Energy | 16.26% | 56.87% | -47.72% | -42.47% | 8.71% | 18.07% | -35.35% | 25.93% |
| Cons. Disc, | -65.91% | -58.10% | -51.58% | -39.68% | 3.44% | -51.01% | 16.59% | 66.90% |
| S&P | -5.87% | -7.49% | -22.40% | -16.30% | 6.95% | -5.07% | -7.64% | 16.69% |
| Sector | Q2 '08 A | Q3 '08 A | Q4 '08 E | Q1 '09 E | 2007 A | 2008 E | 2009 E | 2010 E |
| Utilities | 4.11% | -5.99% | 24.89% | -10.25% | 10.62% | 3.46% | 4.25% | 10.80% |
| Health Care | 8.84% | 7.07% | 6.97% | 0.63% | 19.76% | 7.69% | 5.99% | 9.40% |
| Cons. Stap. | 2.04% | 13.45% | 0.24% | 4.42% | 7.23% | 10.77% | 7.96% | 6.81% |
| Telecom | -1.11% | -15.97% | -16.34% | -7.80% | 18.24% | -4.98% | -3.54% | 5.62% |
| Technology | 17.37% | 7.46% | -25.91% | -22.50% | 11.69% | 15.07% | -9.74% | 17.48% |
| Industrials | 6.23% | 1.08% | -27.36% | -9.41% | 10.07% | 1.25% | -10.93% | 6.76% |
| Materials | 6.18% | 2.03% | -42.55% | -42.30% | 10.15% | -9.11% | -31.33% | 35.83% |
| Energy | 16.25% | 56.44% | -47.05% | -41.96% | 9.11% | 18.17% | -34.83% | 25.40% |
| Cons. Disc, | -58.72% | -43.68% | -48.34% | -37.74% | 1.07% | -43.25% | 10.58% | 56.13% |
| Financials | -53.83% | -92.21% | -193.06% | -2.16% | -18.11% | -74.93% | 115.39% | 41.25% |
| S&P | -10.97% | -12.09% | -29.61% | -17.48% | 3.19% | -12.18% | -2.54% | 19.58% |
Scorecard and Median EPS Growth Rates
- Median EPS growth of 93 firms reporting so far is -8.6%
- Surprise ratio 1.44, median surprise 1.8%, both far below normal
- Financials mostly disappointing, ex Financial Surprise ratio 3.23
- Medians and surprise numbers will be volatile in early going
- Remaining firms expected to be down 8.6% in 4Q
- Median EPS expected to fall in 1Q, but be up for all of 2009
- Only Health Care, Staples and Utilities expected to be positive for both quarters
Keep in mind that median growth rates are inherently equally weighted, so the growth rate for a smaller company is just as significant to the results for the Energy sector as the growth rate for a larger company.
Share repurchases were still very significant in the fourth quarter of last year and the first quarter of this year (the data is not out yet for the second quarter) and the reduction in share count also boosts EPS growth.
Currency translation gains will be less of a factor this quarter due to the rebound in the dollar. However, the strong overseas demand that the previously very weak dollar stimulated will still prove to be a boost to the earnings of many firms. The delay is because in the third quarter they will be shipping goods ordered previously. With both the rebound in the dollar, and the very significant economic slowdown abroad, look for the export boom to fade in 2009.
| Sector | 4Q '08 (A) | 1Q '09 (E) | 2008 (A) | 2009 (E) | 2010 (E) | % Reported | Median % Surprise | # Pos Surprise | # Neg Surprise | # Match |
| Energy | 17.78% | 6.29% | 28.35% | 12.90% | -1.86% | 2.56% | 6.71% | 1 | 0 | 0 |
| Healthcare | 7.29% | 3.57% | 16.90% | 8.58% | 10.58% | 12.96% | 2.17% | 4 | 1 | 2 |
| Industrial | 5.88% | -10.48% | 18.44% | -5.50% | 8.69% | 18.64% | 2.44% | 7 | 1 | 3 |
| Telecom | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% | 0 | 0 | 0 |
| Utilities | -0.18% | 15.96% | -8.64% | 3.18% | 7.90% | 22.22% | 3.12% | 2 | 0 | 0 |
| Cons. Stap. | -0.53% | -2.75% | 9.04% | 5.84% | 8.01% | 15.00% | 3.27% | 5 | 1 | 0 |
| Cons. Disc. | -2.90% | -13.75% | 8.89% | -5.26% | 6.47% | 18.75% | 5.00% | 11 | 2 | 2 |
| Tech | -8.57% | -17.65% | 21.83% | -12.83% | 9.01% | 22.67% | 2.94% | 9 | 6 | 2 |
| Materials | -20.69% | -58.88% | -9.65% | -25.32% | 17.27% | 17.24% | 2.50% | 3 | 2 | 0 |
| Financial | -41.33% | -39.71% | -35.55% | 18.63% | 24.34% | 35.80% | -37.50% | 7 | 21 | 1 |
| S&P 500 | -8.57% | -13.79% | 6.42% | -0.89% | 10.93% | 18.60% | 1.83% | 49 | 34 | 10 |
| Sector | 4Q '08 (E) | 1Q '09 (E) | 2008 (A) | 2009 (E) | |
| Healthcare | 7.14% | 5.13% | 12.90% | 16.89% | |
| Cons. Stap. | 2.70% | 4.01% | 9.69% | 11.30% | |
| Telecom | 0.00% | -5.75% | 30.38% | -2.94% | |
| Utilities | -2.17% | 5.62% | 4.12% | 8.70% | |
| Financial | -12.50% | -8.00% | 12.60% | 11.69% | |
| Industrial | -13.33% | -10.42% | 17.26% | 16.67% | |
| Tech | -17.86% | -10.73% | 11.27% | 15.69% | |
| Energy | -18.39% | -30.28% | 22.43% | 12.35% | |
| Cons. Disc. | -22.06% | -20.00% | 14.58% | 7.87% | |
| Materials | -39.23% | -30.73% | 21.19% | 11.52% | |
| S&P 500 | -8.60% | -3.92% | 13.39% | 13.01% | |
The Zacks Revisions Ratio: 2009
- Revisions ratio for full S&P 500 up to 0.16, from 0.14 on Tuesday
- All sectors have at least 4 cuts per increase
- 8 sectors have at least 5 cuts for every increase
- 19.4% of all firms see consensus earnings estimate decline by more than 10%; 9.6% will declines of more than 20%
- Ratio of firms with rising to falling consensus earnings estimates at 0.21, down from 0.23 on Tuesday
- Total number of revisions (4-week total) up to 2,018 from 1,876 on Tuesday (10.5%)
- Increases up to 277 from 237 (16.9%): cuts up to 1,741 from 1,639 (6.2%)
- Near low of seasonal revisions activity, will pick up sharply over next few weeks
Stocks with Positive Revisions
Forest Laboratories, Inc. (FRX - Analyst Report) had 8 upward revisions and 1 cut. The revisions resulted in a 3.62% increase in the consensus earnings estimate.
There were 2 upward revisions and 0 cuts on General Mills, Inc. (GIS - Analyst Report). The consensus earnings estimate increased 0.30%.
Eli Lilly & Co. (LLY - Analyst Report) had 4 upward revisions and 1 cut resulting. As a result, the consensus earnings estimate increased 0.91%.
Stocks with Negative Revisions:
Coventry Healthcare, Inc. (CVH - Analyst Report) had 13 cuts and 0 increases. The consensus earnings estimate fell 26.1%.
The consensus earnings estimate for NVIDIA Corporation (NVDA - Analyst Report) plunged 39.5%. 13 brokerage analysts cut their forecasts.
To help gauge the direction of the market, we take note of what analysts are thinking. By tallying their EPS changes, we can determine our revisions ratio. This ratio simply divides the total number of positive estimate revisions by the total number of estimate cuts. Thus, a high ratio is a bullish indicator and a low ratio is bearish.
For the S&P 500 as a whole, a number below 0.80 or above 1.25 is generally significant. With smaller totals for any given sector than the S&P 500 over all, the ratio should be farther away from 1.0 to be truly significant. However, for the sake of consistency, we refer to readings above 1.25 as being in positive territory and below 0.80 as being in negative territory.
| Avg. 4wk EPSChange (FY09) | Avg. 4wk EPS Change (FY09) | Revisions Ratio | Firms With FY09 EPS Increase | Firms With FY09 EPS Decrease |
| Consumer Disc | -4.50% | 0.25 | 16 | 61 |
| Health Care | -1.85% | 0.25 | 13 | 40 |
| Consumer Staple | -2.10% | 0.17 | 17 | 23 |
| Energy | -10.85% | 0.16 | 1 | 37 |
| Technology | -6.12% | 0.15 | 6 | 60 |
| Telecom | -8.70% | 0.12 | 1 | 8 |
| Financial Services | -8.19% | 0.11 | 11 | 68 |
| Utilities | -1.79% | 0.11 | 5 | 29 |
| Materials | -11.56% | 0.10 | 4 | 25 |
| Industrials | -4.00% | 0.10 | 8 | 46 |
| S&P 500 | -5.56% | 0.16 | 82 | 397 |
The Zacks Revisions Ratio: 2010
- Revisions ratio stays at 0.17
- More than 3 cuts per increase for 9 sectors, more than 5 per increase in 6 sectors
- Telecom the "strongest"; Industrials, Energy, Materials, Financials and Tech all very weak, but only 9 total revisions in Telecom
- Size of cuts horrific: 19.7% of all S&P firms with 2010 estimates down more than 10% over last 4 weeks; 8.3% down more than 20%
- The ratio of rising to falling consensus earnings estimates declined to 0.23 from 0.31
- Total number of revisions rises to 828 from 774, (7.0%)
- Estimate increases fall to 1119 from 121 (-1.7%), cuts rise to 709 from 656 (8.1%)
- Sample size of 2010 revisions is thin, but starting off weak
- Consensus earnings estimates to be affected by new estimates as much as revisions
| Avg. 4wk EPSChange (FY10) | Avg. 4wk EPS Change (FY10) | Revisions Ratio | Firms With FY10 EPS Increase | Firms With FY10 EPS Decrease |
| Telecom | -0.99% | 0.50 | 2 | 4 |
| Consumer Staples | -1.59% | 0.30 | 10 | 20 |
| Utilities | -1.72% | 0.27 | 7 | 13 |
| Health Care | -3.06% | 0.26 | 11 | 36 |
| Consumer Discr | -5.07% | 0.20 | 14 | 53 |
| Financial Services | -8.57% | 0.14 | 9 | 61 |
| Technology | -9.34% | 0.14 | 9 | 52 |
| Materials | -8.37% | 0.10 | 2 | 22 |
| Energy | -8.92% | 0.07 | 5 | 32 |
| Industrials | -3.44% | 0.04 | 8 | 36 |
| S&P 500 | -5.78% | 0.17 | 77 | 329 |
Earnings Shares and P/Es
- P/Es are too low since earnings estimates are too high
- Earnings Shares, including historical, based on current make up of S&P 500
- Disappearance of Merril, Wachovia and National City distorts Financials 2008 earnings share, with them it is under 4%.
- Health Care expected to take Earnings crown from Energy in 2009
- Energy Earnings Share expected to plunge to 14.6% from 21.3%
- Financials expected to dramatically grow earnings share in 2009 from depressed 2008 levels, but more write-offs are likely
- Consumer sectors market-cap share far above earnings shares (overvalued?)
- S&P P/E of 11.60 equates to earnings yield of 8.62%, very attractive relative to 10 year T-note yield of 2.59%
| Sector | 2008% | 2009% | 2010% | Market Cap% | P/E 08 | P/E 09 | P/E 10 |
| Technology | 15.15% | 14.41% | 14.15% | 16.55% | 12.07 | 13.32 | 11.37 |
| Health Care | 14.72% | 16.39% | 15.03% | 15.39% | 11.55 | 10.88 | 9.95 |
| Cons Staple | 11.59% | 13.09% | 11.72% | 14.39% | 13.71 | 12.75 | 11.93 |
| Energy | 21.34% | 14.60% | 15.35% | 13.45% | 6.96 | 10.68 | 8.52 |
| Industrials | 12.69% | 11.88% | 10.51% | 10.69% | 9.31 | 10.44 | 9.89 |
| Financials | 7.97% | 12.90% | 15.27% | 9.64% | 13.36 | 8.67 | 6.13 |
| Cons Disc. | 4.85% | 5.62% | 7.36% | 8.72% | 19.85 | 17.98 | 11.51 |
| Utilities | 4.15% | 4.54% | 4.17% | 4.41% | 11.73 | 11.25 | 10.26 |
| Telecom | 3.95% | 4.00% | 3.54% | 3.68% | 10.28 | 10.66 | 10.09 |
| Materials | 3.58% | 2.56% | 2.89% | 3.09% | 9.54 | 13.98 | 10.4 |
| S&P 500 | 100.00% | 100.00% | 100.00% | 100.00% | 11.05 | 11.6 | 9.72 |
Neil Malkin contributed significantly to this report.
Data in this report, unless stated otherwise, is through the close on Thursday 1/22/2009
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| Market Summary | Nov 08, 2009 05:51 am ET |
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