Zacks Earnings Trends Highlights: Applied Materials, Motorola, Sandisk, Teradyne and Western Digital

Chicago, IL – August 25, 2009 - Zacks Research Equity Strategist, Dirk Van Dijk says that S&P 500 earnings are continuing to show red ink. He tracks companies on the Zacks.com web site, naming names, while forecasting trends for the months ahead.

Key Points from Van Dijk's Latest Earnings Assessment

Growth

• Second-quarter total net income down 31.0% year-over-year
• Third quarter expected to be down 27.5% year-over-year
• Staples and Health Care only sectors to post positive growth in second quarter
• Only 30.9% of companies posted earnings growth; 23.7% posted sales growth year-over-year

Surprise

• Results much stronger than feared with median surprise of 6.7%
• Positive surprises lead disappointments by 3.4:1 margin (surprise ratio)
• Surprise ratio above 8:1 for Health Care and above 4:1 for Tech, Staples and Discretionary
• Margins the cause, not revenue growth
• 71.2% of firms beat on earnings: 45.9% beat sales estimates

Levels

• Bottom-up estimate for S&P 500 now $60.60 in 2009 versus $60.41 last week.
• S&P 500 now expected to earn $74.90 in 2010 versus $74.74 last week
• Top down estimates $53.84 and $67.44, respectively

Revisions

• Total estimate increases outnumber cuts by more than 5:3 for 2009
• Upward revisions outnumber cuts by more than 4:3 for 2010
• Revisions ratios for both years have risen consistently through earnings season
• For 2009, Staples and Health Care lead; Utilities and Telecom lag
• Tech and Materials also look good for both years

Valuation

• S&P 500 P/E at 16.6x based on 2009 earnings; an earnings yield of 6.02%
• P/E of 13.45x based on 2010 earnings; an earnings yield of 7.43%
• Earnings yields attractive relative to Treasury and corporate bond yields
• Health Care has lowest P/Es of any sector

• Revisions ratio for full S&P 500 up to 1.68, from 1.57
• Revisions ratio up throughout earnings season
• Five sectors in positive territory; Staples and Health Care lead
• Industrials, Utilities and Telecom continue to see estimates cut
• Ratio of firms with rising to falling mean estimates up to 1.55 from 1.51
• Total number of revisions (4-week total) down to 4,371 from 4,587 (-4.7%)
• Increases up to 2,740 from 2,799 (-2.1%); cuts up to 1,631 from 1,788 (-8.8%)
• Total revisions activity passing seasonal peak

The sectors with the strongest surprise profiles are seeing the analysts raise their sights for 2009. This is to be expected since the second quarter is part of the full year, and the failure to raise estimates for the full year by the amount of the second quarter surprise amounts to a de facto cutting of estimates for the third or fourth quarters.

The consistent rise we have seen in the revisions ratio assuages the fear that I had earlier in the earnings season, when the revisions ration had turned positive, but not high enough given the level of positive surprises. Six sectors are now solidly into positive territory (above 1.25, I consider 0.80 to 1.25 to be neutral). Staples has been particularly impressive, with a ratio above 4, but Health Care and Tech also deserve positive notice as well.

The size of the increases in Tech is particularly noteworthy. Even after scrubbing out those with increases of greater than 100% or less than -100%, there were 13 Tech firms with increases in their mean estimates of over 20% out of 45 total in the whole S&P 500.

Some of the particularly strong Tech firms include (based on both size of the change in the mean estimate and the number of estimates raised), Applied Materials (AMAT - Snapshot Report), Motorola (MOT - Analyst Report), Sandisk (SNDK - Analyst Report), Teradyne (TER - Snapshot Report) and Western Digital (WDC - Snapshot Report).

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Contact:
Dirk Van Dijk
Director of Research
312-265-9211
Visit: www.zacks.com