Here’s what is still bothering me:
According to Briefing.com:Two months ago, the 2009 bottoms-up operating earnings estimate (adding all the estimates company by company) for the S&P 500 was $79.09, according to Standard & Poor’s. Today, it is $55.81 for 2009. For the forward four quarters of the second quarter of 2009 through the first quarter of 2010 it is $62.37. Two months ago, the top-down earnings forecast (making economic assumptions and then backing out total earnings projections) for the S&P 500 was $45.78. Today, it is $43.03 for 2009. For the forward four quarters of the second quarter of 2009 through the first quarter of 2010 it is $44.00. In other words, the market rebound has occurred despite any improvement in the earnings outlook as forecasted by Standard & Poor’s. Granted consensus estimates have risen from their nadir, yet the earnings outlook itself hasn’t improved from where it was just two months ago.
Unfortunately, there is a huge difference between operating earnings and “as-reported” earnings, which include all charges. Those charges have been huge and the as-reported earnings estimate for the next 4 quarters is just $31.07, less than HALF of the operating earnings. So we have an apparent p/e of 16.1, which is high in itself but can be argued to be fair assuming low interest and forward growth. What we can’t justify is the as-reported p/e of 35.6, that is way overvalued, even if every single stock in the S&P was a biotech with a successful stage 3 trial!
While many companies have come in ahead of estimates this quarter, very few have done so on revenue growth. What we are seeing is a lot of companies who have done a tremendous job cutting costs – at the expense of 6M jobs, 4M foreclosed homes, 2M individual bankruptcies and $3Tn in government aid. Yesterday’s loss of 546,000 jobs indicates those jobs aren’t exactly coming back and the problem with “celebrating” earnings based on cost cutting is the same problem you have celebrating that a person has stopped bleeding because they have run out of blood – if you don’t replace it soon, he’s still going to die. Getting worse more slowly is not the path to market prosperity.
We had a very poor retail report and ANF just reported this morning a pretty big miss (-.30 vs -.07 expected) on 23.3% less revenues.We’re waiting for JCP, who are, appropriately,expected to lose a…
