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Key Points:
- Fourth-quarter reports remain ugly, total net income for the 184 companies reporting so far is -43.7% versus a year ago
- The surprise ratio of 1.73:1 and the median surprise of 2.30% are both below "normal"
- Financials red ink so far is almost 7x year ago levels.
- Excluding Financials, total earnings are down 16.9%
- Fourth-quarter total net income is now expected to be -31.9%
- Trends continue to be terrible, 2009 expectations fell 6.64% in a week
- Estimate cuts running more than 5:1 over increases for both 2009 and 2010
- Total net income in 2009 now expected to fall 5.5%, following 12.9% 2008 decline
- P/Es based on 2009 estimates will prove to be to low as "E" plunges
- Bottom up estimate for S&P 500 now $66.60 in 2009, down from $69.04 on Tuesday and $71.34 a week ago, I expect it to be less than $60.
Total Net Income Growth
- The returns are very ugly, the 184 that have reported are showing earnings of just $44.5B aggregate versus total earnings of $79.1B a year ago and $89.5B in the third-quarter
- Already reported firms down 43.7% in fourth quarter, remaining firms expected to be down 22.0%
- Total net income expected to fall 31.9% in the fourth quarter from a year ago, was -29.0% a week ago
- Negative year-over-year growth in 4Q now expected for 7 sectors
- Health Care and Utilities only sectors reporting higher income so far
- Energy, Materials and Discretionary all expected to be down over 40% last quarter
- Financials gushing red ink
- Full year net income in 2009 expected to be down 5.5% from 2008 levels, following a 12.9% decline in 2008
- First quarter total net income now expected to be 22.3% below 1Q08, was -15.1% on Tuesday, and -13.7 a week ago
- Early 2010 expectations looks for 21.1% growth over 2009
- Index changes mask size of earnings decline in 2008 (Merrill Lynch, Wachovia, National City and AIG gone)
| Sector | Q2 '08 A | Q3 '08 A | Q4 '08 A | Q1 '09 E | 2007 A | 2008 A | 2009 E | 2010 E | |
| Health Care | 8.26% | 5.88% | 9.59% | -2.12% | 17.72% | 9.12% | 0.92% | 10.59% | |
| Utilities | 5.33% | -5.67% | 7.21% | 11.10% | 19.26% | 0.31% | 3.13% | 6.75% | |
| Cons. Stap. | -0.16% | 0.87% | -8.69% | -10.42% | 15.61% | 0.28% | 3.08% | 11.63% | |
| Telecom | 7.13% | -5.74% | -9.85% | -8.99% | 25.47% | 3.24% | -1.17% | 4.77% | |
| Cons. Disc. | -7.43% | 11.32% | -18.23% | -21.97% | -8.29% | 10.85% | -6.33% | 15.01% | |
| Technology | 22.26% | 12.52% | -21.14% | -32.19% | 16.71% | 17.10% | -14.29% | 18.92% | |
| Industrials | 4.98% | -1.91% | -22.54% | -29.68% | 14.84% | -1.29% | -17.69% | 10.48% | |
| Energy | 4.10% | 37.55% | -30.69% | -46.95% | 6.83% | 7.78% | -41.91% | 10.79% | |
| Materials | 11.36% | 10.89% | -70.38% | -58.66% | 16.78% | -2.53% | -39.96% | 34.89% | |
| Financials | -56.75% | -70.84% | -3251.95% | -51.64% | -24.49% | -87.13% | 193.10% | 88.57% | |
| S&P | -12.15% | -13.08% | -43.69% | -28.70% | 0.71% | -17.87% | -5.53% | 22.86% | |
| 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 |
| Financials | -47.13% | -133.05% | 47.65% | 78.91% | -3.22% | -64.30% | 95.73% | 8.72% |
| Utilities | 3.67% | -6.11% | 25.56% | -18.14% | 7.94% | 4.52% | 4.09% | 12.01% |
| Health Care | 9.87% | 9.35% | 4.14% | 3.85% | 23.67% | 6.61% | 7.10% | 12.61% |
| Cons. Stap. | 2.32% | 15.04% | 0.97% | 5.61% | 6.18% | 12.12% | 8.10% | 6.26% |
| Industrials | 8.22% | 5.87% | -25.33% | -2.71% | 2.71% | 6.81% | -11.00% | 6.03% |
| Technology | 8.30% | -2.66% | -30.24% | -23.43% | 2.80% | 11.84% | -8.39% | 12.84% |
| Energy | 21.53% | 63.88% | -46.18% | -43.22% | 10.01% | 21.88% | -37.15% | 33.61% |
| Materials | -5.99% | -13.63% | -53.74% | -40.34% | -1.40% | -15.74% | -26.29% | 44.99% |
| Cons. Disc. | -74.26% | -68.59% | -56.98% | -47.77% | 4.35% | -60.44% | 21.02% | 86.50% |
| Telecom | -36.95% | -59.17% | -61.66% | -36.12% | -6.07% | -44.86% | -24.27% | -8.93% |
| S&P | -9.72% | -11.08% | -21.99% | -16.39% | 5.79% | -7.91% | -5.12% | 19.55% |
| 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
- The median EPS growth of firms reporting so far is -5.6%
- The surprise ratio of 1.73 and the median surprise of 2.3% are both below normal
- Financials are mostly disappointing, excluding Financials, the surprise ratio improves to 2.88
- Health Care, Discretionary and Industrials doing well on Surprise front
- Remaining firms expected to be down 6.7% in the fourth quarter
- Median EPS expected to fall in the first quarter, but is projected to 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 |
| Healthcare | 11.12% | 7.83% | 16.55% | 8.47% | 11.26% | 37.04% | 4.03% | 13 | 2 | 5 |
| Energy | 7.07% | -18.18% | 13.03% | -33.62% | 4.89% | 28.21% | 6.71% | 6 | 4 | 1 |
| Industrial | 4.21% | -15.22% | 13.42% | -7.23% | 7.14% | 44.07% | 2.39% | 17 | 4 | 5 |
| Utilities | 0.60% | 4.76% | 1.28% | 4.62% | 5.34% | 11.76% | 3.12% | 3 | 0 | 1 |
| Cons. Stap. | 0.04% | -3.38% | 1.59% | 2.18% | 8.86% | 25.00% | 2.07% | 7 | 3 | 0 |
| Telecom | -5.74% | -5.55% | 4.54% | -0.28% | 4.23% | 22.22% | -2.32% | 0 | 2 | 0 |
| Tech | -10.17% | -27.55% | 13.56% | -15.01% | 11.25% | 48.00% | 3.35% | 23 | 10 | 3 |
| Cons. Disc. | -18.18% | -16.00% | 2.47% | -13.21% | 8.62% | 26.25% | 5.00% | 15 | 4 | 2 |
| Materials | -37.84% | -56.89% | -4.76% | -22.58% | 13.19% | 55.17% | 8.43% | 11 | 4 | 1 |
| Financial | -56.67% | -46.13% | -29.45% | -11.15% | 16.83% | 46.91% | -32.83% | 9 | 27 | 2 |
| S&P 500 | -5.63% | -17.50% | 7.04% | -6.25% | 10.64% | 36.80% | 2.30% | 104 | 60 | 20 |
| Sector | 4Q '08 Growth (E) | 1Q '09 Growth (E) | 2008 Growth (E) | 2009 Growth (E) | 2010 Growth (E) |
| Healthcare | 6.39% | 4.99% | 12.33% | 18.54% | 12.91% |
| Cons. Stap. | 2.86% | 3.04% | 10.17% | 12.61% | 8.31% |
| Telecom | -2.47% | -8.70% | 74.21% | -2.94% | -2.61% |
| Utilities | -2.82% | 6.83% | 4.12% | 8.70% | 8.59% |
| Financial | -12.50% | -7.13% | 11.37% | 12.89% | 12.35% |
| Tech | -12.66% | 3.03% | 8.69% | 21.05% | 10.80% |
| Industrial | -13.33% | -10.42% | 15.24% | 16.92% | 9.17% |
| Energy | -21.70% | -34.00% | 21.41% | 12.35% | 22.54% |
| Cons. Disc. | -22.62% | -20.31% | 14.58% | 7.87% | 6.97% |
| Materials | -42.60% | -30.11% | 11.61% | 7.38% | 13.31% |
| S&P 500 | -6.72% | -3.70% | 11.49% | 13.29% | 10.72% |
The Zacks Revisions Ratio: 2009
- Revisions ratio for full S&P 500 up to 0.19, from 0.17 on Tuesday
- Health Care the "strongest" as positive surprises help it
- Nine sectors have at least 4 cuts for every increase
- 24.4% of all firms see consensus earnings estimate decline by more than 10%, 13.4% more than 20%
- Ratio of firms with rising to falling consensus earnings estimates at 0.18, same as Tuesday
- Total number of revisions (4 week-total) up to 2,656 from 2,451 on Tuesday (8.4%)
- Increases up to 410 from 356 (15.2%), cuts up to 2,216 from 2,095 (5.8%)
- Estimate activity picking up sharply, will peak in about a month
Stocks With Positive Revisions:
Forest Labortatories, Inc. (FRX - Analyst Report) had 12 upward revisions and 1 cut. The consensus earnings estimate rose 4.62%.
McKesson Corporation (MCK - Snapshot Report) had 9 upward revisions. The bullish revisions led to a 5.1% increase in the stock's consensus earnings estimate.
Three brokerage analysts raised their projections on Monsanto Company (MON - Snapshot Report). The consensus earnings estimate is 2.6% higher.
Stocks With Negative Revisions
Caterpillar, Inc. (CAT - Analyst Report) had 7 cuts. These revisions resulted in a51.5% drop in the consensus earnings estimate.
ConocoPhillips (COP - Analyst Report) saw 12 brokerage analysts cut their projections. The consensus earnings estimate plunged 31%.
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 | -2.03% | 0.50 | 16 | 37 |
| Consumer Disc | -6.69% | 0.24 | 13 | 65 |
| Technology | -7.85% | 0.22 | 5 | 63 |
| Consumer Staple | -3.38% | 0.19 | 11 | 28 |
| Energy | -13.97% | 0.16 | 2 | 36 |
| Utilities | -2.20% | 0.15 | 5 | 29 |
| Materials | -16.33% | 0.11 | 3 | 26 |
| Financial Services | -11.98% | 0.10 | 10 | 69 |
| Industrials | -6.08% | 0.07 | 9 | 46 |
| Telecom | -9.20% | 0.05 | 0 | 8 |
| S&P 500 | -7.66% | 0.19 | 74 | 407 |
The Zacks Revisions Ratio: 2010
- Sample size of 2010 revisions is thin, but starting off weak
- Revisions ratio rises to 0.20 from 0.17 on Tuesday
- Mean estimates to be affected by new estimates as much as revisions
- More than 3 cuts per increase for 8 sectors, more than 5 per increase in 6 sectors
- Telecom, Health Care the "strongest"
- Industrials, Energy, Materials, Financials and Tech all very weak, but only 15 total revisions in Telecom
- Ratio of rising to falling consensus earnings estimates rises to 0.26 from 0.23
- Total number of revisions rises to 1,127 from 1,046 on Tuesday (7.7%)
- Estimate increases rise to 184 from 156 (17.9%), cuts rise to 943 from 890 (6.0%)
- Size of cuts horrific: 24.6% of all S&P 500 firms 2010 estimates down more than 10% over last 4 weeks, 12.4% down more than 20%
| 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 | -1.69% | 0.50 | 2 | 4 |
| Health Care | -3.42% | 0.48 | 18 | 32 |
| Consumer Staples | -1.97% | 0.29 | 9 | 21 |
| Utilities | -2.31% | 0.24 | 8 | 15 |
| Consumer Discr | -8.40% | 0.19 | 15 | 56 |
| Financial Services | -12.07% | 0.16 | 11 | 60 |
| Technology | -10.71% | 0.15 | 8 | 58 |
| Energy | -12.18% | 0.11 | 3 | 35 |
| Materials | -10.96% | 0.10 | 2 | 23 |
| Industrials | -4.41% | 0.07 | 12 | 36 |
| S&P 500 | -7.73% | 0.20 | 88 | 340 |
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 losers like Merrill, 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 14.3% from 21.3%
- Financials expected to dramatically grow earnings share in 2009 from depressed 2008 levels, but more write-offs are likely
- Consumer Discretionary market cap share far above earnings shares (overvalued?)
- S&P P/E of 12.69 equates to earnings yield of 7.88%, very attractive relative to 10 year T-note yield of 2.86%
| Sector | 2008% | 2009% | 2010% | Market Cap% | P/E 08 | P/E 09 | P/E 10 |
| Technology | 15.18% | 14.54% | 14.03% | 16.84% | 12.96 | 14.7 | 12.6 |
| Health Care | 14.75% | 16.63% | 15.32% | 15.04% | 11.91 | 11.48 | 10.31 |
| Cons Staple | 11.62% | 13.52% | 11.95% | 13.80% | 13.88 | 12.96 | 12.13 |
| Energy | 21.34% | 14.31% | 15.17% | 13.56% | 7.42 | 12.03 | 9.39 |
| Financials | 7.86% | 12.16% | 14.94% | 10.80% | 16.05 | 11.27 | 7.59 |
| Industrials | 12.72% | 11.80% | 10.49% | 10.41% | 9.56 | 11.2 | 10.42 |
| Cons Disc. | 4.84% | 5.68% | 7.42% | 8.63% | 20.84 | 19.29 | 12.22 |
| Utilities | 4.16% | 4.70% | 4.26% | 4.33% | 12.17 | 11.71 | 10.7 |
| Telecom | 3.96% | 4.12% | 3.54% | 3.57% | 10.54 | 10.99 | 10.61 |
| Materials | 3.57% | 2.54% | 2.88% | 3.03% | 9.92 | 15.14 | 11.06 |
| S&P 500 | 100.00% | 100.00% | 100.00% | 100.00% | 11.68 | 12.69 | 10.51 |
Neil Malkin contributed significantly to this report.
Data in this report, unless stated otherwise, is through the close on Thursday 1/29/2009
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