Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
United States Facing Climate Change Severe Water Stress - 10th Dec 18
Waiting for Gold Price to Erupt - 10th Dec 18
Stock Market Key Support Being Re-Tested - 10th Dec 18
May BrExit Deal Tory MP Votes Forecast, Betting Market Analysis - 10th Dec 18
Listen to What Gold is Telling You - 10th Dec 18
The Stock Market’s Long Term Outlook is Changing - 10th Dec 18
Palladium Shortages Expose Broken Futures Markets for Precious Metals - 9th Dec 18
Is an Inverted Yield Curve Bullish for Gold? - 9th Dec 18
Rising US Home Prices and Falling Sales - 8th Dec 18
Choosing Who the Autonomous Car Should Kill - 8th Dec 18
Stocks Selloff Boosting Gold - 8th Dec 18
Will Weak US Dollar Save Gold? - 7th Dec 18
This Is the End of Trump’s Economic Sugar High - 7th Dec 18
US Economy Will Deteriorate Over Next Half Year. What this Means for Stocks - 7th Dec 18
The Secret Weapon for Getting America 5G Ready - 7th Dec 18
These Oil Stocks Are a Ticking Time Bomb - 7th Dec 18
How Theresa May Put Britain on the Path Towards BrExit Civil War - 7th Dec 18
How easy is it to find a job in the UK iGaming industry? - 6th Dec 18
Curry's vs Jessops - Buying an Olympus TG-5 Tough Camera - 5th Dec 18
Yield Curve Harbinger of Stock Market Doom - 5th Dec 18
Stock Market Crashed While the Yield Curve Inverted - 5th Dec 18
Global Economic Outlook after Trump-Xi Trade War Timeout - 5th Dec 18
Stock Market Dow Plunge Following Fake US - China Trade War Truce - 5th Dec 18
Subverting BREXIT - British People vs Parliament Risks Revolution - 5th Dec 18
Profit from the Global Cannabis Boom by Investing in the Beverage Industry - 4th Dec 18
MP's Vote UK Government Behaving like a Dictatorship, in Contempt of Parliament - 4th Dec 18
Isn't It Amazing How The Fed Controls The Stock Market? - 4th Dec 18
Best Christmas LED String and Projector Lights for 2018 - Review - 4th Dec 18
The "Special 38" Markets You Should Trade ebook - 4th Dec 18
Subverting BrExit - AG Confirms May Backstop Deal Means UK Can NEVER LEAVE the EU! - 3rd Dec 18
The Bottled Water Bamboozle - 3rd Dec 18
Crude Oil After November’s Declines - 3rd Dec 18
Global Economic Perceptions Are Shifting - Asia China Markets Risks - 3rd Dec 18
Weekly Charts and Update on Equity Markets, FX Trades and Commodities - 3rd Dec 18
TICK TOCK, Counting Down to the Next Recession - 3rd Dec 18
Stock Market Key (Short-term) Support Holds - 3rd Dec 18
Stocks Bull Market Tops Are a Process - 3rd Dec 18
More Late-cycle Signs for the Stock Market and What’s Next - 3rd Dec 18
A Post-Powell View of USD, S&P 500 and Gold - 2nd Dec 18
Elliott Wave: SPX Decision Time Is Coming Soon - 2nd Dec 18
Junior Gold Stocks Q3’18 Fundamentals - 1st Dec 18
Little-Known BDC Stocks Thrive Amid Rising Rates and Earn Investors +7% Yields - 1st Dec 18
Ray Dalio: This Debt Cycle Will End Soon - 1st Dec 18
Bank of England Warns UK House Prices 30% BrExit Crash! - 1st Dec 18
Gold Fundamentals Improving but Not Bullish Yet - 30th Nov 18
What the Oil Short-sellers and OPEC Don’t Know about Peak Shale - 30th Nov 18
Global Economic Perceptions Are Shifting Imnplications for Stock Market - 30th Nov 18
The US Economy is Getting Worse. What this Means for Stocks - 30th Nov 18
Trailblazers Leading the Way in Online Reputation Management - 30th Nov 18
The Shift in Trend from Physical Printers to Online Printers - 30th Nov 18
UK House Prices 2019 No Deal BrExit 30% Crash Warning! - 30th Nov 18
Stocks Rallied, New Uptrend? - 29th Nov 18
The Fed Will Probably Stop Hiking Rates in 2019. What’s Next for Stocks - 29th Nov 18
Love. Fear. Inflation. A Precious Metals' Trifecta - 29th Nov 18
GBP/USD – Double Bottom or Further Declines? - 29th Nov 18
Stock Market Santa Rally Still a GO to Dow 27,000? - 29th Nov 18
UK Government and Bank of England BrExit Economic Armageddon Propaganda - 29th Nov 18
Why the Crude Oil Price Collapsed to $50 - 28th Nov 18
Gold Joins the Decline – the Earth is Shaking - 28th Nov 18
Watch This Picture As Asset Prices Fall - 28th Nov 18
GE’s Stock Price Crash Holds an Important Lesson About Investing - 28th Nov 18
5 Rules for Successful Trading - 28th Nov 18
Dollar Trend Imposes: EURUSD to Fall to 1.11 - 28th Nov 18
Gold, Original Money, Fiat Money - 28th Nov 18
When Will the Stocks Bull Market End? - 28th Nov 18
Looking ahead: Why the Smart Money is Investing in Green Energy - 28th Nov 18
The Yield Curve Will Invert Soon. What’s Next for the Stock Market - 27th Nov 18
Silver Trading and the Hands of a Broken Clock - 27th Nov 18
What's Inside SMIGGLE Christmas Advent Calender 2018 - 27th Nov 18
Investing in Recession Proof Trailer Parks - 27th Nov 18
The Advantages and Disadvantages of Debt Consolidation - 27th Nov 18
GDX, This Most-Hated Stock Could Return You 140% in Just a Few Months - 27th Nov 18

Market Oracle FREE Newsletter

How You Could Make £2,850 Per Month

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.


© 2005-2018 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