For Immediate Release
Chicago, IL – August 12, 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 32.4% year over year
- Third quarter expected to be down 27.5% year over year
- Staples and Health Care only sectors expected to post positive growth in second quarter
- Only 31.5% of reporting companies posting earnings growth; 23.9% reported year-over-year sales growth
Surprise
- Results much stronger than feared – median surprise is 6.7%
- Positive surprises lead disappointments by 3.3:1 margin (surprise ratio)
- Surprise ratio above 8:1 for Health Care, above 4:1 for Tech, Staples and Discretionary
- Margins the cause, not revenue growth
- 71.2% of firms beat on earnings; 47.3% topped sales estimates
Full-Year Forecast
- Bottom-up estimate for S&P 500 now $60.33 in 2009 versus $60.20 last week.
- S&P 500 now expected to earn $74.68 in 2010 versus $74.42 last week
- Top down estimates $54.19 and $68.48, respectively
Revisions
- Total estimate increases outnumber cuts by almost 3:2 for 2009
- Upward revisions outnumber cuts by almost 5:4 for 2010
- Level of increases small given positive earnings surprises
- For 2009, Staples and Health Care lead; Utilities and Telecom lag
- Tech and Materials also look good for both years
- S&P 500 P/E at 16.75x based on 2009 earnings, or earnings yield of 5.97%
- P/E of 13.53x based on 2010 earnings, or earnings yield of 7.39%
- Earnings yields attractive relative to Treasury and corporate bond yields
- Health Care has lowest P/E’s of any sector
The Zacks Revisions Ratio: 2009
- Revisions ratio for full S&P 500 up to 1.46, from 1.32
- Given the level of positive surprises, the increase in revisions ratio is very small
- 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 1.51 from 1.26
- Total number of revisions (4-week total) up to 4,253 from 3,467 (22.7%)
- Increases up to 2,522 from 1,972 (27.9%); cuts up to 1,731 from 1,495 (18.8%)
- Total revisions activity rising rapidly, nearing 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.
Still, the overall reaction has been relatively anemic. With more than 3x as many positive surprises than disappointments, and often by very large margins (6.7% median surprise), an under 3:2 ratio of upward revisions to estimate cuts is underwhelming. With total revisions activity close to the peak for the quarter, I do not think the data lag excuse holds anymore. Still it is nice to see more increases than cuts. The revisions ratios in Staples and Health Care are very impressive at over 3:1.
With 3x as many firms enjoying upward revisions as cuts in their mean estimates for 2009, there are many strong firms in the Health Care sector. Some that look particularly noteworthy by virtue of the number of increases and the size of the increase in the mean estimate for 2009 include Amerisource Bergen (ABC), Amgen (AMGN), Intuitive Surgical (ISRG) and McKesson (MCK).
Staples also had its stars, the tobacco industry was smoking with Altria (MO), Phillip Morris ((PM) and Reynolds America (RAI) all seeing significant positive activity.
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Contact:
Dirk Van Dijk
Director of Research
312-265-9211
Visit: www.zacks.com
