For Immediate Release
Chicago, IL – September 2, 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 31.0% year-over-year
- Third quarter expected to be down 22.9% year-over-year
- Fourth quarter to more than double year ago, but it is all in the Financials
- Health Care only sector to post positive growth in second quarter
- Only 32.4% of companies posted earnings growth last quarter; 25.0% post sales growth year-over-year
Surprise
- Results much stronger than feared; median surprise was 6.7%
- Positive surprises lead disappointments by 3.4:1 margin (surprise ratio)
- Surprise ratio above 8:1 for Health Care and above 4:1 for Tech, Staples and Discretionary
- Margins the cause, not revenue growth
- 71.2% of firms beat on earnings; 45.9% beat sales estimates
Levels
- Bottom-up estimate for S&P 500 now $60.97 in 2009 versus $60.60 last week.
- S&P 500 now expected to earn $75.09 in 2010 versus $74.90 last week
- Top down estimates $52.94 and $67.09, respectively
Revisions
- Total estimate increases outnumber cuts by than 7:4 for 2009
- Upward revisions outnumber cuts by more than 3:2 for 2010
- Revisions ratios for both years have risen consistently through earnings season
- 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 16.9x based on 2009 Earnings, or an earnings yield of 5.91%
- P/E of 13.73x based on 2010 earnings, or an earnings yield of 7.28%
- Earnings yields attractive relative to Treasury and corporate bond yields
- Health Care has lowest P/Es of any sector
Growth
- Total Net Income falls 31% year over year in 2nd Quarter, 3rd quarter expected to decline 22.9%
- Median EPS declines by 17.4% in 2nd Quarter, 16.2% decline expected in 3rd Quarter
- Explosive 131.6% growth in Total income expected in 4th Quarter, but it is all about last year
- Financials responsible for ALL of the expected year over year growth in the fourth quarter
- Materials and Energy see massive year over year declines in 2nd quarter and expected in the 3rd Quarter.
The Zacks Revisions Ratio: 2009
- Revisions ratio for full S&P 500 up to 1.75, from 1.68
- Revisions ratio up throughout earnings season
- Six 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 1.33 from 1.55
- Total number of revisions (4-week total) down to 3,015 from 4,371 (-31.0%)
- Increases down to 1,917 from 2,740 (-30.0%); cuts fall to 1,098 from 1,631 (-32.7%)
- Total Revisions activity passed seasonal peak, falling rapidly
The long string of improvements in the total revisions ratio for 2009 is impressive, as is the overall level of 1.75, indicating 7 estimate increases for every 4 cuts. Only one sector is in negative territory and only three are in neutral. Staples and Health Care continue to lead the pack, with more than 4 and 3 increases per cut, respectively. Tech and Discretionary are also at very solid levels.
Telecom had three very weak members, Sprint (S), MetroPCS (PCS) and Frontier (FTR), causing the big drop in the average estimate for the sector. Applied Materials (AMAT) and Motorola (MOT) were among the leaders in the Tech sector.
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Contact:
Dirk Van Dijk
Director of Research
312-265-9211
Visit: www.zacks.com
