Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Iran's Death Spiral -- 40 Years And Counting - 17 Feb 19
Venezuela's Opposition Is Playing With Fire - 17 Feb 19
Fed Chairman Deceives; Precious Metals Mine Supply Threatened - 17 Feb 19
After 8 Terrific Weeks for Stocks, What’s Next? - 16th Feb 19
My Favorite Real Estate Strategies: Rent to Live, Buy to Rent - 16th Feb 19
Schumer & Sanders Want One Thing: Your Money - 16th Feb 19
What Could Happen When the Stock Markets Correct Next - 16th Feb 19
Bitcoin Your Best Opportunity Outside of Stocks - 16th Feb 19
Olympus TG-5 Tough Camera Under SEA Water Test - 16th Feb 19
"Mi Amigo" Sheffield Bomber Crash Memorial Site Fly-past on 22nd February 2019 VR360 - 16th Feb 19
Plunging Inventories have Zinc Bulls Ready to Run - 15th Feb 19
Gold Stocks Mega Mergers Are Bad for Shareholders - 15th Feb 19
Retail Sales Crash! It’s 2008 All Over Again for Stock Market and Economy! - 15th Feb 19
Is Gold Market 2019 Like 2016? - 15th Feb 19
Virgin Media's Increasingly Unreliable Broadband Service - 15th Feb 19
2019 Starting to Shine But is it a Long Con for Stock Investors? - 15th Feb 19
Gold is on the Verge of a Bull-run and Here's Why - 15th Feb 19
Will Stock Market 2019 be like 1999? - 14th Feb 19
3 Charts That Scream “Don’t Buy Stocks” - 14th Feb 19
Capitalism Isn’t Bad, It’s Just Broken - 14th Feb 19
How To Find High-Yield Dividend Stocks That Are Safe - 14th Feb 19
Strategy Session - How This Stocks Bear Market Fits in With Markets of the Past - 14th Feb 19
Marijuana Stocks Ready for Another Massive Rally? - 14th Feb 19
Wage Day Advance And Why There is No Shame About It - 14th Feb 19
Will 2019 be the Year of the Big Breakout for Gold? - 13th Feb 19
Earth Overshoot Day Illustrates We are the Lemmings - 13th Feb 19
A Stock Market Rally With No Pullbacks. What’s Next for Stocks - 13th Feb 19
Where Is Gold’s Rally in Response to USD Weakness? - 13th Feb 19
US Tech Stock Sector Setting Up for A Momentum Breakout Move - 12th Feb 19
Key Support Levels for Gold Miners & Gold Juniors - 12th Feb 19
Socialist “Green New Deal” Points the Way to Hyperinflation - 12th Feb 19
Trump’s Quest to Undermine Multilateral Development Banks - 12th Feb 19
Sheffield B17 US Bomber Crash 75th Anniversary Fly-past on 22nd February 2019 Full Details - 12th Feb 19
The 2 Rules For Successful Trading - 12th Feb 19 -
Financial Sector Calls Gold ‘Shiny Poo.’ Are They Worried? - 11th Feb 19
Stocks Bouncing, but Will They Resume the Uptrend? - 11th Feb 19

Market Oracle FREE Newsletter

The Real Secret for Successful Trading

S&P 500 Corporate Earnings Beating Estimates

Stock-Markets / Corporate Earnings Apr 28, 2010 - 02:54 AM GMT

By: Hans_Wagner

Stock-Markets

Best Financial Markets Analysis ArticleTo the surprise of many, the first quarter 2010 earnings for many S&P 500 companies are beating estimates, some substantially. If this is an indication of greater strength in the economy, does this mean the market rally will continue?

Analysts are behind the curve in raising their earnings estimates during the recovery. For example, over the last year quarterly earnings has surprised to the upside between 6 and 13 percent according to Thompson Reuters.


The surprise in earnings to the up side makes sense. During the recession, companies were quick to reduce their expenses when the economy crashed. As the economy recovers, companies have been slow to increase hiring and they are controlling other expenditures. As a result, margins remain strong leading to better earnings than many thought possible.

Corporate revenues are also growing as companies find quality sales opportunities from the emerging markets as well as from the pent up demand in North America. However, the financial sector is contributing a substantial portion of the growth in revenues as it recovers from the drubbing they received a year ago.

With 98 of the S&P 500 companies reporting, 85 percent of the companies have beaten analyst’s expectations according to Bloomberg. This compares to 61 percent that has been typical in recent quarters.

Even more surprising, 70 percent of these companies beat revenue estimates. Of course, we are still early in the earnings season, so the numbers can come down. However, it indicates that companies are growing the top line as well as the bottom line.

In a recent article on predicting the 2010 and 2011 S&P 500, I used the Standard & Poor’s estimates as a guideline. As noted in the article, these estimates have been rising each quarter, as the economic recover proves more robust than many thought. It looks like once again the actual results will beat the estimates.

For the first quarter 2010 the trailing four quarters as reported earnings estimate for the S&P 500 was $59.44 with the first quarter’s earnings coming in at $15.81 for the quarter. While it is early to make a refined forecast, so far the results indicated earnings would be higher than estimated once again. For the 98 companies that have reported, earnings are coming in are slightly more than 13 percent higher than estimated. This helps to power the market higher.

Below is a table from an article I wrote recently on the S&P 500 PE ratio and the forecast for the market. What if earnings for the first quarter of 2010 come in 5 percent higher than expected? This will bring the as reported earnings for the S&P 500 up $0.79 for the quarter. Should the earnings for the quarter come in at 10 percent higher forecast, we would see $1.58 in additional earnings for the quarter or $61.04 for the S&P 500 trailing as reported earnings.

The current PE ratio for the S&P 500 trailing reported earnings is approximately 20. If we assume the first quarter 2010 earnings will come in 10 percent higher than forecast by Standard & Poor’s, the estimate for the S&P 500 is 1,220. On Friday April 23, 2010, the S&P 500 closed at 1,217.

Table from Article titled “S&P 500 PE Ratio - Forecast 2010 – 2011”

  S&P Trailing PE Ratio
Quarter Earnings 10 12 15 17 20 25 30
12/31/2011 $72.20      722   866  1,083  1,227  1,444  1,805  2,166
09/30/2011 $70.40      704   845  1,056  1,197  1,408  1,760  2,112
06/30/2011 $68.06      681   817  1,021  1,157  1,361  1,702  2,042
03/30/2011 $64.95      650   779    974  1,104  1,299  1,624  1,949
12/31/2010 $62.09      621   745    931  1,056  1,242  1,552  1,863
09/30/2010 $61.69      617   740    925  1,049  1,234  1,542  1,851
06/30/2010 $60.93      609   731    914  1,036  1,219  1,523  1,828
03/30/2010 $59.44      594   713    892  1,010  1,189  1,486  1,783

The market is always looking ahead. Since revenues and earnings are beating estimates, it indicates the economy is performing better than many thought. The high levels of unemployment (9.7%) and under employment (16.5%) are keeping the economy back from growing faster. However, people are willing to spend, especially those with secure jobs. In addition, companies are investing in their businesses, contributing to the higher growth of the economy. This pattern of more spending and higher than expected economic activity encourages investors to believe the market will move higher.

Of course, the estimate that earnings will come in 10 percent higher for the quarter is just that, an estimate. We need to monitor the earnings releases during the next several weeks to get a better idea of how much the first quarter’s earnings results will exceed the estimate. If the current pattern holds, the market will continue to rise based on its fundamentals. Since this is the most likely case, we should raise our expectations that earnings will grow faster than many expect as the economy recovers.

By Hans Wagner
tradingonlinemarkets.com

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at http://www.tradingonlinemarkets.com/

Copyright © 2010 Hans Wagner

If you wish to learn more on evaluating the market cycles, I suggest you read:

Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles by Joe Ellis is an excellent book on how to predict macro moves of the market.

Unexpected Returns: Understanding Secular Stock Market Cycles by Ed Easterling.  One of the best, easy-to-read, study of stock market cycles of which I know.

The Disciplined Trader: Developing Winning Attitudes by Mark Douglas.  Controlling ones attitudes and emotions are crucial if you are to be a successful trader.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules