- The forward 4-quarter estimate this week was $124.28 versus last week’s $124.90 and $125.60 of 5 weeks ago.
- The P.E ratio on the forward estimate is 16.7(x) vs 16.8(x) last week.
- The PEG ratio is still negative, although using this data from last week, the PEG is closer to 2.5(x) – 3(x) the ex-Energy and ex-Apple (NASDAQ:AAPL) growth rates.
- The S&P 500 earnings yield was 5.98% this week, versus 5.94% last week, reflecting the roughly 1.25% decline in the S&P 500 for the trading week.
- The y/y growth in the forward estimate was -1.48% this week, a slight sequential improvement in the -1.50% from last week. The growth rate in the forward estimate is still negative, and still worrisome.
- Health Care: 67% above, 33% below, with 51 of the 56 S&P 500 Health Care companies reporting
- Financials: 61% above, 39% below with 85 of the 88 S&P 500 Financial companies reporting
- Technology: 58% above, 42% below with 55 of the 67 S&P 500 Technology companies reporting
- Consumer Disc: 54% above, 46%, below with 61 of the 84 S&P 500 Consumer Discretionary companies reporting
- Energy: 48% above, 52% below with 40 of the 40 S&P 500 Energy components having reported already
- Consumer Stpls: 36% above, 64% below, with 28 of the 37 S&P 500 Consumer Staples components having reported
- Industrials: 30% above, 70% below with 63 of the 66 S&P 500 Industrial components have reported already
- Basic Materials: 30% above, 70% below, with 27 of the 28 S&P 500 Basic Materials companies have reported already
- Utilities: 26% above, 74% below, with 27 of the 29 S&P 500 Utility components having reported already
- Telecom: 20% above, 80% below with 5 of the 5 S&P 500 Telecom companies having reported
- S&P 500: 49% above, 51% below with 442 of the S&P 500 companies having reported as of August 7, 2015
Analysis / conclusion: With the vast majority of the S&P 500 having reported Q2 ’15 earnings, the EPS “beat” rate (actual EPS vs. the mean consensus estimate) is pretty solid at 71%, well above the average of 63% per Thomson Reuters. The revenue beat rate is far more disappointing at 49% versus the long-term average of 60% and, also per Thomson, the current beat rate of 49% is even below the last 4-quarter average of 56%.
However, if we look at the data, the majority of the “revenue” problem (ranked from top to bottom) is coming from three sectors:
A couple of things surprised me about this list:
Energy, which I thought would be far worse in terms of ranking, is just slightly below 50%, which could be telling us that Energy expectations have really gotten too low;
Consumer Staples is worse than Energy, which tells me that perhaps the dollar is a bigger influence than we thought
Industrials (!), wow, that 30% beat rate was surprising. I’m wondering if the sector is setting up for a longer-term opportunity for patient investors, with a portfolio hedge using the PowerShares DB US Dollar Bullish Fund (NYSE:UUP). This requires more homework, but the Industrial components are cash-flow rich, and reasonably-valued, at least the companies I follow fundamentally.
Telco, Utilities and Basic Materials are each about 6% – 7% of the S&P 500 by market cap. I would say the majority of the pain or drag of S&P 500 revenue is coming from Industrias which is 10% – 11% of the S&P 500 by market cap.
Of the Industrials, General Electric (NYSE:GE) is one of my favorites given the company is finally shedding GE Capital, getting good prices for the assets, and is returning to its true industrial roots. GE is still trading more than 50% below its September, 2000 peak of $60 per share. Every time the stock trades near $25.50, I start to pick at it for clients. A 3.6% dividend yield today, with a lot of apathy and little enthusiasm baked into the stock price, sounds good to me. Just be patient with the stock – more portfolio re-engineering is ahead.