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Expectations Continue to Plunge
Key Points:
- Surprise numbers improve from last week, but are still below "normal"
- Profit reports (153 total) are ugly with total net income 39.6% below a year ago
- Financials red ink so far is almost 7x worse than year ago levels.
- Excluding Financials, total earnings down 13.0%
- Fourth-quarter total net income expected to be 29.0% below year ago
- Estimate cuts running more than 5:1 over increases for both 2009 and 2010
- Total net income in 09, now expected to be 5.5% below 2008, was -2.5% on Thursday
- Bottom up estimate for S&P 500 now $69.04 in 2009, down from $71.34 on Tuesday and $72.41 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
Total Net Income Growth
- Total net income expected to fall 29.0% in fourth quarter from a year ago, was -29.6% a week ago
- Negative year-over-year growth is now expected for 7 sectors in the fourth quarter
- Financials are gushing red ink
- Energy, Materials and Discretionary all expected to be down over 40% in the fourth-quarter
- Excluding Financials, last quarter's total net income is down 15.5% from a year ago
- Early returns very ugly, the 153 companies that have reported are showing earnings of just $36.4B aggregate versus total earnings of $60.3B a year ago and $70.7B in 3Q
- Full-year net income in 2009 expected to be down 5.5% from 2008 levels, following a 12.4% decline in 2008
- First-quarter total net income now expected to be 15.1% below a year ago, was -13.7% on Thursday
- Early 2010 expectations looks for 21.3% 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 | |
| Health Care | 9.15% | 6.43% | 11.32% | -1.80% | 17.81% | 9.52% | -1.89% | 14.11% | |
| Utilities | 2.82% | -10.30% | 8.73% | 13.46% | 25.06% | -1.52% | 3.31% | 7.23% | |
| Energy | -18.72% | 22.84% | 7.78% | -3.81% | 17.37% | 0.99% | -21.48% | -2.85% | |
| Telecom | 12.00% | 2.81% | -3.20% | -0.23% | -7.09% | 7.63% | 2.87% | 3.22% | |
| Cons. Stap. | -0.35% | 0.60% | -9.65% | -9.69% | 15.75% | -0.08% | 4.53% | 10.46% | |
| Cons. Disc. | -6.07% | 14.59% | -15.35% | -21.58% | -10.08% | 14.12% | -5.82% | 14.82% | |
| Technology | 22.36% | 11.93% | -20.54% | -32.79% | 16.84% | 17.18% | -13.66% | 18.90% | |
| Industrials | 6.19% | 0.50% | -21.40% | -28.62% | 12.82% | -2.39% | -18.31% | 9.49% | |
| Materials | 9.29% | 11.48% | -78.38% | -60.85% | 14.13% | -4.44% | -44.05% | 38.15% | |
| Financials | -60.58% | -73.80% | -656.80% | -62.69% | -27.31% | -95.37% | 617.73% | 100.22% | |
| S&P | -15.58% | -15.62% | -39.60% | -27.15% | -1.76% | -21.31% | -1.78% | 24.14% | |
| Sector | Q4 '08 | Q4 '07 | Q3 '08 | Q3 '07 | |||
| Technology | $15,809 | $19,896 | $17,149 | $15,321 | |||
| Health Care | $15,714 | $14,116 | $15,936 | $14,974 | |||
| Industrials | $10,818 | $13,764 | $12,127 | $12,066 | |||
| Energy | $3,965 | $3,679 | $4,514 | $3,675 | |||
| Cons. Disc. | $2,516 | $2,972 | $5,059 | $4,415 | |||
| Cons. Stap. | $2,058 | $2,278 | $2,150 | $2,137 | |||
| Telecom | $1,725 | $1,782 | $1,865 | $1,814 | |||
| Utilities | $1,268 | $1,166 | $1,459 | $1,627 | |||
| Materials | $654 | $3,024 | $4,130 | $3,705 | |||
| Financials | ($18,117) | ($2,394) | $6,300 | $24,046 | |||
| S&P | $36,409 | $60,283 | $70,690 | $83,780 | |||
| Sector | Q2 '08 A | Q3 '08 A | Q4 '08 E | Q1 '09 E | 2007 A | 2008 E | 2009 E | 2010 E |
| Utilities | 4.43% | -5.08% | 27.91% | -15.22% | 7.67% | 4.55% | 4.06% | 11.53% |
| Financials | -43.17% | -115.86% | 26.33% | 45.22% | -3.28% | -55.07% | 52.70% | 17.87% |
| Health Care | 8.38% | 8.08% | 1.67% | 5.25% | 22.87% | 6.30% | 7.09% | 12.44% |
| Cons. Stap. | 2.34% | 15.03% | 0.73% | 5.61% | 6.20% | 12.14% | 8.14% | 6.52% |
| Telecom | -5.02% | -21.84% | -20.89% | -12.80% | 29.25% | -9.09% | -5.75% | 5.66% |
| Industrials | 6.27% | 1.73% | -21.89% | -3.70% | 6.85% | 5.65% | -6.96% | 5.84% |
| Technology | 10.07% | 0.50% | -29.58% | -22.09% | 4.47% | 12.46% | -9.49% | 14.07% |
| Materials | 0.58% | -10.00% | -48.78% | -29.71% | 4.54% | -10.42% | -19.44% | 35.28% |
| Energy | 21.62% | 61.23% | -50.72% | -47.35% | 8.00% | 20.89% | -40.21% | 32.61% |
| Cons. Disc. | -73.24% | -67.91% | -56.45% | -46.59% | 4.63% | -59.12% | 19.35% | 83.62% |
| S&P | -7.64% | -9.61% | -23.37% | -17.61% | 6.87% | -6.37% | -7.66% | 19.64% |
| 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% | 24.06% | -10.69% | 10.62% | 3.39% | 3.92% | 10.75% |
| Health Care | 8.84% | 7.07% | 7.38% | 0.94% | 19.76% | 8.25% | 1.59% | 13.43% |
| Cons. Stap. | 2.04% | 13.45% | -0.50% | 3.78% | 7.23% | 10.72% | 7.76% | 6.93% |
| Telecom | -1.11% | -15.97% | -16.66% | -9.67% | 18.24% | -5.11% | -3.42% | 4.95% |
| Industrials | 6.23% | 1.08% | -21.61% | -16.58% | 10.07% | 1.20% | -13.02% | 7.66% |
| Technology | 17.37% | 7.46% | -23.81% | -28.50% | 11.69% | 15.34% | -12.08% | 17.02% |
| Energy | 16.25% | 56.44% | -44.43% | -43.58% | 9.06% | 18.46% | -38.26% | 27.91% |
| Cons. Disc. | -58.72% | -43.68% | -48.16% | -40.59% | 1.07% | -43.35% | 8.43% | 57.69% |
| Materials | 6.18% | 2.03% | -64.03% | -50.09% | 10.15% | -6.79% | -34.74% | 36.81% |
| Financials | -53.83% | -92.21% | -201.88% | -12.96% | -18.08% | -77.09% | 115.12% | 48.22% |
| S&P | -10.97% | -12.09% | -29.02% | -21.22% | 3.20% | -12.43% | -5.52% | 21.34% |
Scorecard and Median EPS Growth Rates
- Median EPS growth of 93 firms reporting so far is -2.9%
- Surprise ratio 1.85, median surprise 2.4%, both below normal
- Financials mostly disappointing, ex Financial Surprise ratio 3.29
- Health Care, Discretionary and Industrials doing well on Surprise front
- Medians and surprise numbers will be volatile in early going
- Remaining firms expected to be down 7.9% in 4Q
- Median EPS expected to fall in 1Q, but be up for all of 2009
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 | 13.51% | -14.06% | 10.53% | -24.55% | 0.67% | 17.95% | 15.07% | 5 | 1 | 1 |
| Healthcare | 11.12% | 7.28% | 16.81% | 8.32% | 10.82% | 33.33% | 4.03% | 11 | 2 | 5 |
| Utilities | 4.90% | 5.26% | -3.25% | 6.47% | 5.47% | 8.82% | 1.90% | 2 | 0 | 1 |
| Industrial | 2.60% | -14.61% | 12.87% | -7.47% | 9.73% | 35.59% | 2.86% | 14 | 2 | 5 |
| Telecom | -1.61% | 1.64% | 7.63% | 2.87% | 3.22% | 11.11% | -1.61% | 0 | 1 | 0 |
| Cons. Stap. | -9.01% | -1.85% | -4.25% | 0.81% | 8.12% | 22.50% | 1.69% | 6 | 3 | 0 |
| Cons. Disc. | -9.45% | -13.50% | 8.20% | -10.37% | 7.43% | 22.50% | 4.91% | 13 | 3 | 2 |
| Tech | -10.17% | -29.40% | 10.64% | -15.31% | 11.25% | 40.00% | 3.10% | 19 | 8 | 3 |
| Materials | -20.69% | -64.54% | -4.89% | -27.83% | 12.79% | 44.83% | 10.42% | 9 | 4 | 0 |
| Financial | -41.33% | -51.65% | -32.23% | -5.00% | 20.92% | 40.74% | -15.38% | 8 | 23 | 2 |
| S&P 500 | -2.90% | -15.22% | 7.16% | -4.75% | 10.65% | 30.60% | 2.44% | 87 | 47 | 19 |
| Sector | 4Q '08 Growth (E) | 1Q '09 Growth (E) | 2008 Growth (E) | 2009 Growth (E) | 2010 Growth (E) |
| Healthcare | 6.59% | 4.99% | 13.89% | 17.60% | 12.77% |
| Cons. Stap. | 3.11% | 2.56% | 10.10% | 12.56% | -8.68% |
| Utilities | -2.78% | 6.25% | 3.62% | 8.30% | 8.34% |
| Telecom | -3.09% | -8.89% | 31.25% | 11.23% | 2.35% |
| Financial | -12.50% | -8.00% | 12.28% | 11.69% | 12.13% |
| Tech | -12.90% | -5.06% | 9.12% | 19.15% | 11.07% |
| Industrial | -13.33% | -10.42% | 15.82% | 16.67% | 8.45% |
| Cons. Disc. | -22.67% | -20.16% | 14.45% | 7.97% | 7.90% |
| Energy | -25.84% | -38.48% | 21.41% | 12.35% | 23.54% |
| Materials | -39.23% | -28.29% | 11.50% | 13.47% | 14.35% |
| S&P 500 | -7.92% | -4.71% | 11.72% | 13.32% | 11.01% |
The Zacks Revisions Ratio: 2009
- Revisions ratio for full S&P 500 up to 0.17, from 0.16 on Thursday
- Health Care the "strongest" thanks to positive surprises
- 9 sectors have at least 4 cuts for every increase
- 24.0% of all firms see consensus earnings estimate decline by more than 10%, 9.8% more than 25%
- Ratio of firms with rising to falling consensus earnings estimates at 0.18, down from 0.21 on Thursday
- Total number of revisions (4-week total) up to 2,451 from 2,018 on Tuesday (21.5%)
- Increases up to 356 from 277 (28.5%), cuts up to 2,095 from 1,741 (20.3%)
- Estimate activity picking up sharply, will peak in about a month
Stocks With Positive Revisions:
Apple Inc. (AAPL - Analyst Report) had 14 upward revisions and 7 cuts. The changes resulted in a 1.85% increase in its consensus earnings estimate.
12 brokerage anlaysts raised their forecasts on Family Dollar Stores, Inc. (FDO - Snapshot Report). The consensus earnings estimate rose by 4.34%.
Southwest Airlines Co. (LUV - Snapshot Report) enjoyed 7 upward revisions and 4 cuts. This led to a 10.44% jump in the consensus earnings estimate.
Stocks With Negative Revisions
Capitol One Financial Corporation (COF - Analyst Report) saw 15 brokerage analysts cut their forecasts. The negative sentiment led to a 66.4% drop in the consensus earnings estimate.
Johnson Controls, Inc. (JCI - Analyst Report) had 8 cuts. The consensus earnings estimate plunged by more than 50%.
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.
| SECTOR | Avg. 4wk Change FY1 | Revisions Ratio: #ests up/# ests dn 4 wk | # Of Firms with FY1 EPS 4wk Increase | # Of Firms with FY1 EPS 4wk Decrease |
| Health Care | -2.13% | 0.41 | 14 | 39 |
| Consumer Disc | -6.23% | 0.24 | 13 | 64 |
| Technology | -7.63% | 0.20 | 5 | 63 |
| Consumer Staple | -2.46% | 0.18 | 10 | 28 |
| Energy | -13.96% | 0.14 | 2 | 36 |
| Telecom | -6.35% | 0.13 | 0 | 8 |
| Utilities | -2.20% | 0.12 | 5 | 29 |
| Materials | -11.33% | 0.10 | 4 | 25 |
| Financial Services | -13.01% | 0.09 | 10 | 70 |
| Industrials | -5.14% | 0.08 | 9 | 46 |
| S&P 500 | -7.19% | 0.17 | 72 | 408 |
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 12 total revisions in Telecom
- Ratio of rising to falling consensus earnings estimates falls to 0.23 from 0.31
- Total number of revisions rises to 1046 from 828, (26.3%)
- Estimate increases rise to 156 from 119 (31.1%), cuts rise to 890 from 709 (25.5%)
- Size of cuts horrific: 23.4% of all S&P firms 2010 estimates down more than 10% over last 4 weeks, 11.6% down more than 20%
- Sample size of 2010 revisions is thin, but starting off weak
- Mean estimates to be affected by new estimates as much as revisions
| SECTOR | 4wk Change FY2 | (Sum[FY2 Rev 4wk Increase]) / (Sum[FY2 Rev 4wk Decrease) | # Of Firms with FY2 EPS 4wk Increase | # Of Firms with FY2 EPS 4wk Decrease |
| Telecom | -1.28% | 0.71 | 2 | 4 |
| Health Care | -3.24% | 0.43 | 16 | 34 |
| Consumer Staples | -1.84% | 0.30 | 10 | 20 |
| Utilities | -2.24% | 0.25 | 9 | 13 |
| Consumer Discr | -6.32% | 0.19 | 15 | 55 |
| Financial Services | -12.64% | 0.13 | 10 | 61 |
| Technology | -10.12% | 0.13 | 8 | 55 |
| Materials | -10.06% | 0.08 | 2 | 22 |
| Energy | -12.31% | 0.07 | 3 | 35 |
| Industrials | -3.81% | 0.04 | 12 | 35 |
| S&P 500 | -7.24% | 0.18 | 87 | 334 |
Earnings Shares and P/Es
- Health Care expected to take Earnings crown from Energy in 2009
- Energy Earnings Share expected to plunge to 14.3% from 21.4%
- Financials expected to dramatically grow earnings share in 2009 from depressed 2008 levels, but more write-offs are likely
- Consumer sectors market cap shares far above earnings shares (overvalued?)
- S&P P/E of 12.25 equates to earnings yield of 8.16%, very attractive relative to 10 year T-note yield of 2.66%
- 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 losers like Merril, Wachovia and National City distorts Financials 2008 earnings share, with them it is under 4%.
| Sector | 2008% | 2009% | 2010% | Market Cap% | P/E 08 | P/E 09 | P/E 10 |
| Technology | 15.17% | 14.55% | 14.03% | 16.83% | 12.54 | 14.17 | 12.14 |
| Health Care | 14.74% | 16.34% | 15.31% | 15.33% | 11.76 | 11.5 | 10.14 |
| Cons Staple | 11.61% | 13.50% | 11.93% | 14.11% | 13.74 | 12.81 | 11.98 |
| Energy | 21.36% | 14.34% | 15.15% | 13.68% | 7.25 | 11.69 | 9.14 |
| Industrials | 12.72% | 12.00% | 10.55% | 10.46% | 9.3 | 10.68 | 10.04 |
| Financials | 7.85% | 12.18% | 14.91% | 9.90% | 14.25 | 9.96 | 6.72 |
| Cons Disc. | 4.86% | 5.69% | 7.42% | 8.55% | 19.92 | 18.41 | 11.67 |
| Utilities | 4.16% | 4.68% | 4.24% | 4.44% | 12.09 | 11.63 | 10.62 |
| Telecom | 3.96% | 4.14% | 3.59% | 3.64% | 10.39 | 10.78 | 10.27 |
| Materials | 3.58% | 2.58% | 2.89% | 3.05% | 9.63 | 14.44 | 10.67 |
| S&P 500 | 100.00% | 100.00% | 100.00% | 100.00% | 11.31 | 12.25 | 10.12 |
Neil Malkin contributed significantly to this report.
Data in this report, unless stated otherwise, is through the close on Thursday 1/27/2009
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| Market Summary | Nov 08, 2009 07:45 am ET |
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