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Earnings to More than Double

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Key Points:

• With 374, or 74.8% of S&P 500 reports in, earnings season is very strong. Median Surprise 5.54%. Positive surprises beat disappointments by a 4.10 ratio
• Earnings of reported firms up 49.4% year over year; remaining firms expected to go from loss to profit collectively (excluding AIG), growth of 11.4% expected
• Big reported earnings growth driven by Financials moving from loss a year ago to profits now, but even excluding the financial sector earnings are up 11.4% year over year
• Sequentially reported earnings down 5.9% but remaining firms expected to see 1.5% growth
• Final year-over-year growth now expected to be 103.7%
• Strong 30.91% total net income growth expected for 2010, with 19.91% more expected for 2011, rebounding from -22.6% decline in 2008, -9.97% in 2009
• Rebounding earnings for Finance, Materials and Energy to lead 2010 charge
• Huge margin expansion in 4Q expected to continue in 2010 and 2011
• Total revenues expected to fall 9.4% in 2009, rise 6.1% in 2010, up 6.9% in 2011
• Revisions ratios fall to 1.67 for 2010, rise to 1.85 for 2011; total activity rising fast
• Autos, Retail and Tech revisions strong
• Firms up/firms down ratio at 1.41 for 2010, 1.31 for 2011
• S&P500 expected to earn $550.1 billion in 2009, $720.1 billion in 2010, $863.5 billion in 2011
• Bottom Up estimates: $59.26 for 2009, $77.59 for 2010, $92.97 for 2011
• Top Down estimates: $57.45 for 2009, $76.05 for 2010, $88.22 for 2011

Welcome to the new Earnings Trends. We have decided to start focusing our analysis of the S&P 500 based on Zacks' own sector groupings rather than the S&P GICS sectors. There are 16 Zacks sectors and only 10 GICS sectors, so the new groupings will result in better granularity of the data. The old way simply grouped too many very different companies together. In addition, we are presenting top-line as well as bottom-line expectations and surprise information.

We use the convention of referring to the next full fiscal year to be completed as 2010, though 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.

PIGS Focus Muddies Earnings Strength

The Market has been focused more on the plight of the PIGS (Portugal, Ireland, Greece and Spain) than it has on earnings reports of late. Just by looking at how the market has behaved, you would have had no idea about just how strong this earnings season has been. With close to 3/4 (74.8%, or 374) the reports in, the year-over-year earnings growth has simply been fabulous at 49.4%. And expectations for the remaining firms are much better than that.

All together, the 126 remaining to report firms collectively lost $13.1 billion last year, but are expected to post a profit of $28.2 billion this year. However, it is distorted by a single firm, AIG (AIG) -- of which we are all shareholders. If AIG and its massive year-ago losses are excluded, the growth rate falls to 11.4%.

If each remaining firm were to report exactly in line with expectations, the overall earnings growth for the full S&P 500 would be 103.7%. Of course, that says as much about just how disastrous the state of the economy (and thus corporate profits) was a year ago as it says about things being good today.

However, even set against the expectations coming into the earnings season, it has been an extremely good one. For every earnings disappointment there have been more than four positive surprises. In all, 73.5% of all firms reporting have come in with better than expected earnings. Half of all the surprises (including the disappointments) have been more than 6.54%.

Even on the top line, things are coming in both better than last year, and better than expected. Total revenues are 5.31% higher than a year ago among the 374 firms that have already reported, and positive revenue surprises are beating revenue disappointments by a margin of 2.27:1. Put another way, 65.5% of all firms have reported better-than-expected revenues. Overall, 57.9% of all firms have reported higher revenues than a year ago. In the third quarter, that figure was below 30%.

While the dramatic growth in earnings is largely due to turnarounds in a handful of very large firms moving from big losses a year ago to profits this year, that is not the full story. Most of those big turnarounds were in the Financial sector. In total, the 70 finance companies that have reported so far have earned $15.5 billion this year, while those same firms lost a total of $18.0 billion a year ago.

However, even if we exclude the Financial sector, total earnings are up 11.4%. Companies reporting higher earnings than a year ago outnumber firms with falling earnings by a ratio of 1.75. While the big percentage growth is largely a function of a few big turnarounds, earnings growth is still widespread, with 63.6% of all firms reporting higher EPS than a year ago.

Margin Expansion to Continue

Earnings growth is dramatically higher than revenue growth, which means we are seeing a huge increase in net margins. That margin expansion is expected to continue, not only in 2010, but into 2011 as well.

Looking at full-year 2009 earnings, total net income is expected to be lower than that of 2008, but just by 9.97% -- a much smaller decline than the 22.6% plunge in 2008. This year will be one of earnings recovery, with growth of 30.91% expected, but note that that will still leave earnings below 2007 levels.

Further growth of 19.9% is expected for total earnings in 2011. As for the top line, after a 9.4% plunge in 2009, revenues are expected to grow by 6.1% in 2010, followed by 6.9% growth in 2011. 

In general, corporate revenue growth should be highly correlated with nominal GDP growth (although the S&P 500 certainly does not make up all corporate revenue in the country, nor do all of the revenues come from in the U.S.). It looks like analysts are collectively expecting a fairly strong economic recovery over the next two years.

Breakdown by Sector

In 2010, the percentage growth numbers will be not really meaningful for the Auto and Construction sectors. While the 2009 numbers will be positive, they are so close to break-even that big percentage gains in 2010 are not to really be taken seriously.

Among the larger sectors, Materials and Financials are expected to be the growth leaders for the year (Financials did the negative-to-positive thing in 2009). Energy is also expected to see a large rebound in its total profits. Together, Finance and Energy will account for more than half of all the incremental earnings in both 2010 and 2011, even though together they account for only 25% of the total market capitalization of the index. However, in the absence of mark-to-market rules, the quality of the earnings in the Financials is suspect. Do you file their book values under fiction or non-fiction?

The revisions ratios for both 2010 and 2011 are strong, and should give us confidence that those growth rates will actually be achieved, if not exceeded (although it's still early for 2011). Every sector but Utilities and Transportation has seen more estimates raised for 2010 than cut, and the revisions ratio for 2010 stands at an extremely strong 1.67. In other words, the positive earnings surprises are causing the analysts to raise their sights for the future.

Unlike the other three quarters of the year, there is no “mechanical” reason to raise estimates in response to a positive earnings surprise. Fourth quarter 2009 earnings are not part of the full year 2010 earnings, the way the third quarter 2009 earnings were part of full year 2009 earnings. The raising of the sights extends into 2011, where the revisions ratio stands at 1.85.

The upward estimate revisions are not just in a handful of firms, either. The ratio of firms with rising estimates for 2010 to falling mean estimates stands at 1.41 for 2010 and 1.31 for 2011. The S&P 500 is selling for 13.9x consensus expectations for 2010, or an earnings yield of 7.19% -- almost twice the yield on the 10-year Treasury note (3.69%). The S&P is selling for just 11.6x consensus expectations for 2011. Stocks look very attractive, at least relative to bonds, at this point.

Scorecard & Earnings Surprise
•    Almost 3/4 of reports in, very strong season so far
•    Earnings Surprise Ratio (#beat/#miss) at 4.10, very strong but below 3Q level
•    Growth in scorecard is only for those firms that have reported
•    Reported growth very strong at 49.4% so far yr/yr, but that says more about a year ago than today, sequentially down 5.9%. Among reported firms, sequential decline in 1Q of 5.64% is expected
•    Median Earnings Surprise 5.54%, a very strong reading
•    Year-over-year Earnings Growth Ratio (# Positive Growth/# Negative Growth) at 1.75, big improvement over recent quarters. 63.6% report positive growth

In evaluating the data presented here, keep the percentage reported in mind. The move to the 16 Zacks sectors means that even when all reports are in, some of the sectors will still have relatively few firms in them. For firms with only a few reports in, the median surprise will be very volatile as new firms are added to the sample.

With 74.8% of the reports in, this has been a very strong earnings season so far (although one would not know that by looking at the market action). Yes, we had easy comps from a year ago, but 49.4% year-over-year growth is nothing to sneeze at. While most of that eye-popping growth is due to a handful of firms, mostly in the Financials, even if they are excluded earnings growth is still 11.4%.

The majority of firms are reporting higher earnings than a year ago. Earnings are coming in much better than expected, with 73.5% of all firms reporting coming in with better-than-expected earnings and only 17.9% disappointing.

While all sectors have seen more positive surprises than disappointments, Tech has put on an absolutely stunning performance. With 81.9% of its results in, there have been 53 positive surprises, and not a single disappointment.

Autos have far fewer firms, but with 2/3 of its results in, it has a perfect record, and a stunning 82.15% median surprise. Conglomerates, Retail and Discretionary are also having stellar seasons in terms of positive surprises relative to disappointments. Disappointments are concentrated in the Financials, as the sector is responsible for 32.8% of all firms falling short of expectations.

Scorecard & Earnings Surprise
Income Surprises Yr/Yr
Growth
%
Reported
Surprise
Median
EPS
Surp
Pos
EPS
Surp
Neg
#
Grow
Pos
#
Grow
Neg
Auto - to + 66.67% 82.15 4 0 3 1
Construction - to + 81.82% 33.96 7 2 6 3
Consumer Discretionary 12.46% 88.57% 15.00 28 1 19 12
Industrial Products -19.19% 84.21% 11.39 11 4 8 8
Computer and Tech 52.33% 81.94% 11.12 53 0 42 17
Conglomerates -5.09% 88.89% 9.94 8 0 4 4
Retail/Wholesale 18.51% 39.53% 6.07 16 1 14 3
Basic Materials 176.37% 82.61% 4.35 13 5 12 7
Medical 0.13% 78.26% 3.72 27 3 28 8
Consumer Staples 0.16 76.32% 3.63 20 8 23 6
Finance - to + 89.47% 3.39 43 22 50 18
Business Service 0.08 70.00% 3.33 8 2 9 5
Utilities -0.18 47.62% 3.05 12 5 10 10
Transportation -0.20 90.00% 2.74 6 3 1 8
Oils and Energy -0.32 62.50% 1.89 14 8 6 19
Aerospace 0.16 100.00% 1.88 5 3 3 7
S&P 49.40% 74.80% 5.54 275 67 238 136


Sales Surprises
•    Sales Surprise Ratio at 2.27, median surprise 1.75%
•    Total revenues rise by 5.31% year over year, rising revenue firms exceed falling revenue firms by a 1.32 ratio
•    Rising total revenues mostly due to the Financials (some of which actually had negative revenues last year)
•    Six sectors seeing revenues down, three by double digits, so far
•    Tech leads in revenue surprises, Medical and Energy also posting positive surprises

Total revenues of the 308 S&P 500 firms that have reported are up a very strong 5.24%. This is mostly due to a handful of Financial firms that actually reported negative revenues last year. In distinct contrast to the third quarter when less than one third of all firms reported rising year-over-year sales, this quarter rising revenue firms out number decliners by 1.32:1.

The fact that earnings have risen far more than have revenues, means that we are seeing an explosion in net margins (or more precisely we are recovering from the collapse in net margins a year ago).

Sales Surprises
Sales Surprises Yr/Yr
Growth
%
Reported
Surprise
Median
Sales
Surp
Pos
Sales
Surp
Neg
#
Grow
Pos
#
Grow
Neg
Auto 15.89% 66.67% 13.71 3 1 3 1
Construction -12.67% 81.82% 5.74 6 3 2 7
Oils and Energy 1.98% 62.50% 5.70 20 5 10 15
Computer and Tech 8.59% 81.94% 2.88 52 8 42 18
Conglomerates -7.06% 88.89% 2.52 6 2 2 6
Medical 9.79% 78.26% 2.27 27 9 33 3
Busines Service 4.79% 70.00% 2.27 11 4 10 5
Basica Materials -16.30% 82.61% 2.02 12 7 5 14
Industrial Products -14.30% 84.21% 1.51 11 5 7 9
Consumer Staples 5.31% 76.32% 1.45 22 8 18 12
Consumer Discretionary -4.37% 88.57% 0.92 21 10 18 13
Transportation -7.91% 90.00% 0.80 6 3 1 8
Retail/Wholesale 6.29% 39.53% 0.64 13 5 13 5
Finance 28.98% 89.47% 0.48 24 20 41 29
Aerospace 12.46% 100.00% -0.15 5 5 6 4
Utilities -2.28% 47.62% -7.55 6 13 5 15
S&P 5.31% 74.80% 1.75 245 108 216 164


Expected Quarterly Growth: Total Net Income
• The remaining 126 firms left to report collectively were in the red last year, but are expected to be in the black this year. Percentage growth can not be meaningfully calculated
• If one firm (AIG) is excluded, the growth rate is a positive 11.4% for the yet-to-report set
• Positive remaining yr/yr growth expected for 6 sectors (not counting the negative to positives), negative for 6; Industrials, Transportation and Utilities to lag
• If all the remaining firms were to exactly hit expectations, year-over-year growth for total S%P 500 would be 10.7%
• The numbers in the table (and Revenue growth table) below only refer to those firms which have not reported yet. The numbers will shift as the sample size here falls and correspondingly increases among those that have reported

Quarterly Growth: Total Net Income
Income Growth Sequential Q1/Q4 E Sequential Q4/Q3 E Year over Year
4Q 09 E
Year over Year
1Q 10 E
Conglomerates na na na na
Aerospace na na na na
Auto 19.60% -69.53% - to + 139.75%
Finance 521.20% -87.18% - to + 170.48%
Computer and Tech 12.63% -2.77% 21.26% 20.92%
Oils and Energy -4.89% 8.32% 16.51% 19.27%
Retail/Wholesale -30.35% 47.05% 12.84% 8.01%
Medical 10.16% 9.82% 12.70% 25.96%
Consumer Discretionary 89.35% 38.11% 2.45% 44.08%
Consumer Staples -6.92% -17.86% 0.58% 8.26%
Utilities 24.82% -34.67% -0.46% 2.61%
Basica Materials -4.43% -7.86% -16.60% 53.80%
Busines Service -35.75% 6.41% -16.78% 2.56%
Construction -3.80% -9.74% -18.12% -19.54%
Transportation -6.50% 1.27% -24.70% -6.91%
Industrial Products 121.95% -9.89% -34.46% -14.00%
S&P -50.52% 1.54% - to + -36.36%


Quarterly Growth: Total Revenues
•    S&P 500 Revenues (of unreported) expected to be up 3.3% year over year in 4Q
•    Sequential revenue growth of 10.51% expected for 4Q, down 5.70% expected in 1Q
•    Only 5 sectors expected to post positive year-over-year revenue growth in 4Q; 9 negative

Keep in mind that these numbers only refer to those firms that have yet to report their 4Q results. As firms report, the sample of firms left to report will shrink, potentially causing big week-to-week changes in the expected (and historical) growth rates. However, these tables are useful to look at to see which way the reported growth rates are likely to head by the time earnings season is over.

Quarterly Growth: Total Revenues
Sales Growth Sequential Q1/Q4 E Sequential Q4/Q3 A Year over Year
4Q 09 E
Year over Year
1Q 10 E
Conglomerates na na na na
Aerospace na na na na
Medical 13.82% 16.52% 24.85% 35.72%
Computer and Tech -0.74% 1.52% 6.15% 9.62%
Consumer Discretionary 9.53% 10.96% 5.29% 6.93%
Retail/Wholesale -11.52% 15.27% 3.09% 3.73%
Consumer Staples -12.29% 4.66% 2.75% 0.50%
Auto -5.34% -5.78% -1.01% 4.28%
Utilities 5.19% 3.83% -3.21% 16.73%
Busines Service -27.88% 2.55% -3.32% -22.48%
Oils and Energy 3.10% 10.99% -4.21% 12.51%
Basica Materials -0.97% 2.80% -4.90% 16.72%
Construction -4.08% 4.47% -7.38% -4.94%
Finance -0.01% 21.08% -8.52% -4.98%
Industrial Products 31.06% -11.63% -10.67% -3.60%
Transportation -9.25% 1.16% -19.74% 4.27%
S&P -5.70% 10.51% 3.27% 5.08%


Annual Total Net Income Growth
• Total S&P 500 Net Income in 2009 expected to be 9.97% below 2008 levels
• Total earnings for the S&P 500 expected to jump 30.9% in 2010, 19.9% further in 2011
• Earnings recovery to happen by mid-2011, full-year 2011 earnings to be 9.4% above 2007 levels
• Data for 2011 is still thin, but improving each week, so take with a grain of salt. New estimates affect growth as much or more than revisions
• Four sectors to see positive growth for 2009, although Finance and Autos moving from a loss to a profit, Construction posting much smaller loss. Among the positive-to-positive growth rates, only Medical is more than 1%
• Autos, Construction, Finance, Basic Materials and Energy expected to be earnings growth leaders in 2010. Conglomerates only sector expected to see earnings decline in 2010
• Despite strong growth in both 2010 and 2011, Energy earnings in 2011 expected to be 19.3% below 2008 levels
• Early data suggests that all sectors are expected to see further growth in 2011; Autos, Construction to lead (low base). Seven sectors seeing 20%+ growth
• The annual growth numbers are for all 500 firms in the S&P 500, regardless if they have reported or not

Annual Total Net Income Growth
EPS Growth 2008 2009 2010 2011
Construction + to - - to - - to + 68.24%
Auto + to - - to + 923.77% 58.04%
Finance + to - - to + 200.00% 46.73%
Basic Materials -4.88% -50.88% 58.27% 28.52%
Oils and Energy 20.42% -56.11% 45.22% 26.67%
Computer and Tech 12.78% -5.33% 31.87% 13.73%
Transportation 3.72% -29.03% 16.56% 21.33%
Aerospace 13.31% -14.27% 14.13% 8.02%
Consumer Staples -6.11% 0.01% 12.99% 9.32%
Busines Service 35.92% 0.27% 12.55% 15.66%
Industrial Products 6.39% -37.30% 11.80% 27.44%
Retail/Wholesale 1.26% 0.95% 11.70% 13.67%
Consumer Discretionary 8.84% -6.36% 8.40% 10.64%
Medical 9.33% 1.77% 7.85% 10.04%
Utilities -0.96% -13.74% 4.83% 7.42%
Conglomerates -10.96% -25.44% -6.49% 19.55%
S&P -22.60% -9.97% 30.91% 19.91%


Annual Total Revenue Growth
• Total S&P 500 Revenue in 2009 expected to be 9.40% below 2008 levels
• Total revenues for the S&P 500 expected to rise 6.06% in 2010, 6.94% in 2011
• Only 4 sectors to post positive revenue growth in '09, all but Finance expected to be positive in 2010
• Aerospace, Medical and Financials lead 2009 revenue growth
• Energy, Autos, Materials and Construction see biggest revenue declines in 2009. Energy expected to see double digit increases in 2010. Materials, Medical and Tech also to be strong
• Data for 2011 thin, but improving

Annual Total Revenue Growth
Sales Growth 2008 2009 2010 2011
Oils and Energy 24.36% -34.72% 17.49% 17.30%
Basic Materials 19.03% -19.46% 8.80% 8.45%
Medical 7.77% 6.01% 8.64% 3.55%
Computer and Tech 7.55% -5.25% 8.56% 8.49%
Industrial Products 10.13% -19.68% 5.01% 8.55%
Consumer Staples -4.00% -10.85% 4.79% 4.23%
Transportation -29.48% -14.61% 4.63% 8.68%
Business Service 9.99% -3.18% 4.37% -3.65%
Retail/Wholesale 5.09% 1.26% 4.34% 4.89%
Utilities 5.49% -4.50% 3.97% 2.42%
Consumer Discretionary 6.54% -9.19% 2.94% 5.15%
Auto -8.23% -21.49% 2.74% 10.43%
Construction -14.10% -15.66% 1.60% 11.67%
Aerospace 2.26% 6.30% 1.52% 3.78%
Conglomerates 6.32% -13.51% 1.00% 3.45%
Finance -20.71% 4.65% -1.38% 5.42%
S&P 4.45% -9.40% 6.06% 6.94%


Revisions: Earnings
The Zacks Revisions Ratio: 2010

• Revisions ratio for full S&P 500 at 1.67, very strong, down from 1.74 last week
• Autos, Retail and Tech lead revisions ratios, but thin data for Autos
• Earnings surprises for 4Q09 earnings leading to upward revisions for 2010
• Utilities and Transportation weakest sectors for 2010: > 2 cuts per increase
• Ratio of firms with rising-to-falling mean estimates at 1.41 down from 1.65 last week
• Positive earnings surprises for 2009 leading to upward revisions for 2010
• Total number of revisions (4-week total) up to 4,436 from 4,038 last week (9.9%)
• Increases up to 2,773 from 2,564 (8.2%), cuts up to 1,663 from 1,472 (13.0%)
• Total Revisions activity rising dramatically, nearing seasonal peak

The Auto sector’s strength is being driven by Ford (F - Free Report) , Cummins Engine (CUM) and Johnson Controls (JCI).  All three of which have double digit estimate increases, leading to double digit increases in their mean estimates. None of the three had any estimate cuts for 2010.

The Zacks Revisions Ratio: 2010
Sector %Ch
Curr Fiscal Yr
Est - 4 wks
#
Firms
Up
#
Firms
Down
#
Ests
Up
#
Ests
Down
Revisions
Ratio
Firms
up/down
Auto 14.97 4 2 45 8 5.63 2.00
Retail/Wholesale 1.28 31 8 268 56 4.79 3.88
Computer and Tech 8.36 54 15 628 153 4.10 3.60
Consumer Discretionary -0.49 20 13 223 94 2.37 1.54
Industrial Products 12.85 10 8 106 56 1.89 1.25
Medical 0.81 27 18 280 172 1.63 1.50
Construction 3.03 7 4 53 35 1.51 1.75
Basic Materials -2.61 15 8 107 73 1.47 1.88
Conglomerates -4.96 4 4 37 26 1.42 1.00
Aerospace -0.29 5 5 63 45 1.40 1.00
Business Service -0.22 10 9 84 60 1.40 1.11
Oils and Energy -1.59 24 16 243 178 1.37 1.50
Consumer Staples 2.55 18 16 120 100 1.20 1.13
Finance 0.55 36 39 412 379 1.09 0.92
Utilities -0.66 13 28 73 156 0.47 0.46
Transportation 0.32 3 7 31 72 0.43 0.43
S&P 1.64 281 200 2773 1663 1.67 1.41

Revisions: Earnings
The Zacks Revisions Ratio: 2011
• Revisions ratio for full S&P 500 at 1.85, up from 1.8, very strong
• Data thinner for 2011 than 2010, but looks very positive
• For the next few months, estimate additions will have as much impact as estimate revisions
• Small Auto sector leads (just one cut vs. 32 increases) but sample very small; Tech and Retail lead among the major sectors
• Ratio of firms with rising estimate to falling mean estimates at 1.31, down from 1.34 last week
• Utilities very weak with more than 2 cuts for every increase. Construction, Transportation and Finance also see more cuts than increases
• Total number of revisions (4-week total) at 2,543, up from 2,304 (10.4%)
•  Increases up to 1,651 from 1,484 (11.3%) cuts rise to 892 from 820 (8.9%)

The 2011 strength in Tech is being led by some of the biggest and most well know Tech firms, including Microsoft (MSFT - Free Report) , Apple (AAPL - Free Report) and Texas Instruments (TXN - Free Report) .

The Zacks Revisions Ratio: 2011
Sector %Ch
Next Fiscal Yr Est - 4 wks
#
Firms Up
#
Firms Down
#
Ests Up
#
Ests Down
Revisions
Ratio
Firms up/down
Auto 7.60 5 0 32 1 32.00 #DIV/0!
Computer and Tech 5.40 49 17 375 82 4.57 2.88
Retail/Wholesale 0.22 34 8 121 27 4.48 4.25
Industrial Products 4.43 11 7 76 22 3.45 1.57
Conglomerates 0.77 6 2 30 9 3.33 3.00
Consumer Discretionary 0.37 23 12 139 55 2.53 1.92
Consumer Staples 1.73 18 15 86 38 2.26 1.20
Business Service -1.26 7 10 58 26 2.23 0.70
Basic Materials 2.01 15 8 60 34 1.76 1.88
Oils and Energy 2.79 26 14 161 93 1.73 1.86
Medical 0.14 18 27 188 134 1.40 0.67
Aerospace 0.60 6 3 38 32 1.19 2.00
Finance -0.23 31 43 202 208 0.97 0.72
Transportation 1.85 4 5 26 27 0.96 0.80
Construction -1.41 5 6 17 19 0.89 0.83
Utilities -0.95 12 29 42 85 0.49 0.41
S&P 1.41 270 206 1651 892 1.85 1.31


Total Income and Share
• S&P500 expected to earn $550.1 billion in 2009, $720.1 billion in 2010, $863.5 billion in 2011
• Energy Share of total earnings expected to rise to 12.6% in 2010 from 11.3% in 2009, further rise to 13.3% in 2011. Will remain well short of 2008 share of 23.4%
• Finance share of total earnings moves from deficit in 2008 to 6.2% in 2009, 14.2% in 2010, 17.4% in 2011
• Medical share of total earnings far exceeds market cap share (index weight), but earnings share expected to shrink from 17.5% in 2009 to 13.2% in 2011
• Two sectors, Financial and Energy, to account for 53.9% of all incremental earnings between 2009 and 2011. Together they account for just 25.0% of total Market Cap
• Together over the two years, Tech and Medical will account for 18.1% of all incremental earnings, but they account for 30.6% of total market cap
• Together Discretionary and Retail will contribute just 5.5% of incremental earnings from 2009 to 2011, but account for 14.4% of market cap. The two sectors to account for 12.1% of 2011 earnings 

Total Income and Share
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 $91,826.54 $121,090.17 $137,720.10 16.69% 16.82% 15.95% 18.48%
Medical $96,136.80 $103,684.13 $114,096.53 17.48% 14.40% 13.21% 12.15%
Finance $34,190.02 $102,568.97 $150,494.56 6.22% 14.24% 17.43% 13.92%
Oils and Energy $62,391.98 $90,607.49 $114,768.75 11.34% 12.58% 13.29% 11.11%
Retail/Wholesale $51,029.53 $56,998.85 $64,792.85 9.28% 7.92% 7.50% 8.49%
Consumer Staples $47,456.28 $53,622.01 $58,618.77 8.63% 7.45% 6.79% 7.35%
Utilities $48,332.71 $50,666.31 $54,423.40 8.79% 7.04% 6.30% 6.19%
Consumer Discretionary $35,994.50 $39,018.07 $43,168.23 6.54% 5.42% 5.00% 5.88%
Conglomerates $24,489.88 $22,899.40 $27,375.92 4.45% 3.18% 3.17% 3.64%
Basica Materials $12,843.23 $20,327.07 $26,123.53 2.33% 2.82% 3.03% 3.14%
Aerospace $13,329.17 $15,213.20 $16,433.66 2.42% 2.11% 1.90% 1.84%
Busines Service $11,765.00 $13,241.34 $15,315.21 2.14% 1.84% 1.77% 2.29%
Transportation $9,918.91 $11,560.98 $14,026.79 1.80% 1.61% 1.62% 2.09%
Industrial Products $10,150.38 $11,348.56 $14,463.00 1.85% 1.58% 1.67% 1.95%
Auto $526.16 $5,386.72 $8,512.93 0.10% 0.75% 0.99% 0.89%
Construction ($310.03) $1,876.46 $3,156.90 -0.06% 0.26% 0.37% 0.60%
S&P 500 $550,071.05 $720,109.73 $863,491.13 100.00% 100.00% 100.00% 100.00%

P/E Ratios
• S&P 500 trading at 18.2x 2009 earnings, or an earnings yield of 5.49%
• Trading at 13.9x 2010, 11.6x 2011 earnings, or earnings yields of 7.19% and 8.62%, respectively
• Earnings yields extremely attractive relative to 10-year T-Note rate of 3.69%
• Medical has lowest P/E based on 2009 and 2010 earnings, but Finance best looking out to 2011. Construction has highest P/E for 2010 and 2011
• Auto, Construction and Finance high 2009 P/Es to fall dramatically in 2010 and 2011
• S&P 500 expected to earn $59.26 in 2009, $77.59 in 2010 and $92.97 in 2011

P/E Ratios
P/E 2008 2009 2010 2011
Construction NM NM 31.8 18.9
Transportation 15.0 21.1 18.1 14.9
Industrial Products 12.1 19.3 17.2 13.5
Busines Service 19.2 19.1 17.0 14.7
Auto NM 169.5 16.6 10.5
Conglomerates 11.1 14.9 15.9 13.3
Basica Materials 12.1 24.5 15.5 12.1
Computer and Tech 19.1 20.2 15.3 13.5
Consumer Discretionary 15.3 16.4 15.1 13.7
Retail/Wholesale 16.9 16.7 15.0 13.2
Consumer Staples 15.5 15.5 13.7 12.6
Finance NM 40.8 13.6 9.3
Oils and Energy 7.8 17.9 12.3 9.7
Utilities 11.1 12.9 12.3 11.4
Aerospace 11.9 13.8 12.1 11.2
Medical 12.9 12.7 11.8 10.7
S&P 500 16.4 18.2 13.9 11.6

Special Feature: Biggest FY1 Revisions

The screen 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.

Special Feature: Biggest FY1 Revisions
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
D R Horton Inc DHI 213.15% -5.35% 1.00 0.20 20.69 23.23
Eastman Kodak EK 208.82% -124.71% 0.83 -0.20 10.61 N/A
Harman Intl Ind HAR 173.60% 31.99% 0.75 1.00 56.49 22.50
Sandisk Corp SNDK 88.05% 89.22% 0.80 0.17 14.44 13.98
Ford Motor Co F 57.76% 19.58% 0.86 0.55 12.87 7.95
Apple Inc AAPL 44.86% 38.60% 0.90 0.73 17.63 15.07
Broadcom Corp BRCM 41.75% 19.96% 0.92 0.52 23.76 20.36
Tyson Foods A TSN 40.31% 30.86% 0.85 1.00 11.70 11.09
Rockwell Automt ROK 37.58% 28.10% 0.82 0.75 22.30 17.36
Teradyne Inc TER 34.95% 20.28% 0.86 0.50 10.37 8.64
Parker Hannifin PH 33.74% 16.04% 0.89 0.82 21.04 15.24
Western Digital WDC 28.38% 26.67% 0.90 0.90 6.62 6.55
Lexmark Intl LXK 24.70% 11.95% 0.64 0.21 10.79 10.01
Altera Corp ALTR 24.66% 25.52% 0.86 0.39 15.07 13.86
Cabot Oil & Gas COG 24.22% 71.43% 0.00 0.00 42.59 61.72
Estee Lauder EL 22.00% 20.51% 0.89 0.94 20.39 17.63
Novellus Sys NVLS 20.21% 13.88% 0.69 0.20 13.10 9.92
Black & Decker BDK 19.88% 16.89% 0.75 0.63 20.19 16.21
Cummins Inc CMI 18.53% 13.25% 0.75 0.50 23.53 14.39
Johnson Control JCI 17.97% 8.46% 0.94 0.82 15.82 12.68
Nvidia Corp NVDA 17.47% 24.12% 0.44 0.64 25.96 21.28
Plum Creek Tmbr PCL 17.25% 0.11% 0.92 0.36 26.01 24.05
Starwood Hotels HOT 16.23% 10.12% 0.90 0.30 56.20 36.78
Massey Egy Cpy MEE 16.06% 14.79% 0.65 0.39 16.39 9.39
Molex Inc MOLX 15.99% 11.05% 1.00 0.91 20.88 14.57

Data in this report, unless stated otherwise, is through the close on Thursday 2/11/2010.

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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