The remote server returned an unexpected response: (400) Bad Request.
By Dirk Van Dijk at Zacks Investment Research
Key Points:
- Reports rolling in fast: 159, or 31.8%, of S&P 500 firms have reported.
- Great start with a median surprise of 5.88%, and a 7.58 surprise ratio. Total of 128 positive surprises and just 17 disappointments. Positive year-over-year growth for 130, falling EPS for 28 firms, a 3.81 ratio. Total net income reported up 33.8%.
- Sales Surprise ratio at 1.78, median surprise 0.64%, 54.7% of all firms do better than expected on top line. Revenue growth healthy at 5.78%. Excluding financials, revenue growth at 10.2%.
- Total net income (for those yet to report) for the S&P 500 in the third quarter of 2010 is expected to rise 13.8% over third quarter of 2009 levels — a slowdown from the 37.4% growth those same firms had in the second quarter. A rebound to 15.8% growth expected in the fourth quarter.
- Net margins (among the 341 yet to report) expected to rise to 7.52% from 6.92% a year ago. Excluding financials, net margins expected to rise from 6.88% last year to 7.11% in the third quarter.
- Full-year total earnings for the S&P 500 expected to jump 42.5% in 2010, 11.0% further in 2011. Total revenues for the S&P 500 expected to rise 4.93% in 2010, 6.05% in 2011. Excluding financials, revenue growth of 8.38% expected in 2010, 7.01% in 2011.
- Autos, Finance, Basic Materials and Energy expected to be earnings growth leaders in 2010. Construction expected to move from the red to the black. No sector expected to see earnings decline in 2010.
- Net Margins marching higher, from 5.90% in 2008 to 6.42% in 2009 to 8.78% expected for 2010, 9.12% expected for 2011 — a major source of earnings growth. Net margins ex-financials 7.81% in 2008, 7.13% in 2009, 8.14% expected for 2010, 8.50% in 2011.
- Revisions ratio for full S&P 500 at 1.85 for 2010, at 1.21 for 2011, an improvement from last week.? Ratio of firms with rising to falling mean estimates at 1.70 for 2010, 1.11 for 2011. Total revisions activity picking up, for 2010, all from estimate increases.
- S&P 500 earned $546.2 billion in 2009, expected to earn $778.0 billion in 2010, $863.4 billion in 2011.
- S&P 500 earned $57.57 in 2009: $81.96 in 2010 and $90.78 in 2011 expected.
- Bottom Up puts P/E’s at 20.5x for 2009, 14.4x for 2010, and 13.0x for 2011.
- Top Down estimates: $79.90 for 2010, $92.27 for 2011.
Due to a broken wrist, I have had to type this report mostly one-handed. Thus, this week I am dispensing with my normal commentary and you will have to make due with the bullet points and tables. I would point out that this has been a great reporting season so far, especially on the bottom line. The top line also looks good especially if one excludes the financials.
However, soaring net margins have been the primary driver of the earnings growth. Analysts have responded to the better-than-expected results by raising their estimates, but much more so for 2010 than for 2011. The lack of upward revisions for 2011 might be a yellow flag.
Scorecard & Earnings Surprise
- 159 firms have reported 3Q earnings. The numbers are now becoming meaningful. However don’t neglect the “expected” tables, which still represent more than 2/3 of the S&P 500.
- We are off to a very strong start with a median surprise of 5.88%, and a 7.53 surprise ratio.
- Positive year-over-year growth for 130, falling EPS for 28 firms, a 4.64 ratio.
- Total net income up 33.8%. Pay attention to the % reported in evaluating the significance of sector growth rates and surprise medians.
- All sectors have more positive surprises than disappointments, eight sectors perfect.
Historically, a “normal earnings season” will have a surprise ratio of about 3:1 and a median surprise of about 3.0%. Thus, this is a very positive earnings season, or will be if the numbers hold up as more firms report. While the jury is still out, it seems like this is going to be another better-than-expected earnings season.
| Scorecard & Earnings Surprise 3Q Reported | |||||||
|---|---|---|---|---|---|---|---|
| Income Surprises | Yr/Yr Growth | % Reported | Surprise Median | EPS Surp Pos | EPS Surp Neg | # Grow Pos | # Grow Neg |
| Construction | 181.08% | 9.09% | 166.67 | 1 | 0 | 1 | 0 |
| Auto | -22.22% | 16.67% | 9.21 | 1 | 0 | 1 | 0 |
| Industrial Products | 67.06% | 40.00% | 9.17 | 8 | 0 | 7 | 1 |
| Basic Materials | 27.80% | 30.43% | 8.90 | 5 | 2 | 6 | 1 |
| Conglomerates | 5.99% | 40.00% | 8.59 | 5 | 0 | 3 | 1 |
| Finance | 59.65% | 44.87% | 8.11 | 26 | 7 | 24 | 11 |
| Computer and Tech | 50.89% | 35.71% | 7.32 | 19 | 2 | 23 | 2 |
| Business Service | 5.04% | 21.05% | 6.79 | 3 | 0 | 3 | 1 |
| Retail/Wholesale | 13.12% | 33.33% | 6.25 | 14 | 1 | 14 | 1 |
| Oils and Energy | 23.37% | 12.82% | 5.15 | 4 | 0 | 4 | 1 |
| Medical | 7.48% | 31.91% | 5.00 | 15 | 0 | 13 | 2 |
| Transportation | 72.03% | 66.67% | 4.00 | 5 | 1 | 6 | 0 |
| Consumer Discretionary | 19.75% | 30.30% | 3.74 | 7 | 1 | 9 | 1 |
| Aerospace | 644.90% | 50.00% | 2.63 | 4 | 1 | 4 | 1 |
| Consumer Staples | 8.84% | 31.58% | 2.48 | 8 | 2 | 8 | 4 |
| Utilities | 4.97% | 11.63% | 1.10 | 3 | 0 | 4 | 1 |
| S&P 500 | 33.77% | 31.80% | 5.88 | 128 | 17 | 130 | 28 |
Sales Surprises
- Sales Surprise ratio at 1.78, median surprise 0.64%; 54.7% of all firms do better than expected on top line.
- Growing Revenues outnumber falling revenues by ratio of 3.82, 79.2% of firms have higher revenues than a year ago.
- Revenue growth healthy at 5.78% but still greatly lags earnings growth, pointing to net margin expansion (see net margin tables below).
| Sales Surprises | |||||||
|---|---|---|---|---|---|---|---|
| Sales Surprises | Yr/Yr Growth | % Reported | Surprise Median | Sales Surp Pos | Sales Surp Neg | # Grow Pos | # Grow Neg |
| Basic Materials | 16.59% | 30.43% | 5.357 | 7 | 0 | 7 | 0 |
| Industrial Products | 36.00% | 40.00% | 4.697 | 8 | 0 | 8 | 0 |
| Auto | 13.20% | 16.67% | 3.021 | 1 | 0 | 1 | 0 |
| Construction | 14.42% | 9.09% | 2.91 | 1 | 0 | 1 | 0 |
| Finance | -7.85% | 44.87% | 2.2135 | 9 | 3 | 17 | 18 |
| Business Service | 5.94% | 21.05% | 1.65 | 3 | 1 | 4 | 0 |
| Oils and Energy | 21.49% | 12.82% | 0.695 | 4 | 1 | 4 | 1 |
| Computer and Tech | 27.01% | 35.71% | 0.522 | 19 | 6 | 25 | 0 |
| Transportation | 14.49% | 66.67% | 0.4765 | 3 | 3 | 6 | 0 |
| Retail/Wholesale | 6.19% | 33.33% | 0.339 | 10 | 5 | 13 | 2 |
| Medical | 5.02% | 31.91% | -0.453 | 7 | 8 | 11 | 4 |
| Consumer Discretionary | 6.69% | 30.30% | -0.585 | 4 | 6 | 9 | 1 |
| Consumer Staples | 9.43% | 31.58% | -0.7995 | 5 | 7 | 8 | 4 |
| Utilities | 2.75% | 11.63% | -0.994 | 2 | 3 | 4 | 1 |
| Aerospace | 3.07% | 50.00% | -1.754 | 2 | 3 | 5 | 0 |
| Conglomerates | -1.09% | 40.00% | -2.908 | 2 | 3 | 3 | 2 |
| S&P 500 | 5.78% | 31.80% | 0.6435 | 87 | 49 | 126 | 33 |
Reported Quarterly Growth: Total Net Income
The first table shows the actual reported growth of those that have already reported, and the second table showing the expected growth for the firms that have yet to report. The reported numbers are based on a very small sample size and do not reflect what the overall S&P 500 is likely to report. See comment in the Earnings Scorecard section.
- The total net income of firms that have reported so far is 33.8% above what they reported in the third quarter of 2009. These same firms reported year-over-year growth of 36.5% in the second quarter. Sequential earnings growth is 3.38%.
- Ten sectors reporting showing double-digit earnings growth, six with more than 50% growth, Autos only negative sector, but only one firm has reported there.
- Seven sectors showing acceleration in year-over-year growth from second quarter, nine decelerate.
- If remaining firms come in exactly on target, 46.4% of all net income for the quarter has already reported.
- The numbers in the table (and Revenue growth table) below only refer to those firms which have already reported. Refer back to the % reporting in the scorecard to assess the significance of the sector growth numbers.
| Quarterly Growth: Total Net Income Reported | |||||
|---|---|---|---|---|---|
| Income Growth | Sequential Q4/Q3 E | Sequential Q3/Q2 A | Year over Year 3Q 10 A | Year over Year 4Q 10 E | Year over Year 2Q 10 A |
| Aerospace | 10.36% | -5.18% | - to + | -17.82% | -9.30% |
| Construction | -83.17% | -25.00% | - to + | 110.97% | 322.22% |
| Transportation | -2.10% | 3.83% | 72.03% | 30.40% | 81.04% |
| Industrial Products | -9.93% | 10.48% | 67.06% | 64.79% | 105.77% |
| Finance | -8.16% | -2.79% | 59.65% | 158.53% | 81.84% |
| Computer and Tech | 13.34% | 4.57% | 50.89% | 22.60% | 68.92% |
| Basic Materials | 3.53% | -5.92% | 27.80% | 23.30% | 44.55% |
| Oils and Energy | 8.12% | 10.13% | 23.37% | 31.85% | 21.63% |
| Consumer Discretionary | -44.81% | 89.76% | 19.75% | 6.18% | 23.44% |
| Retail/Wholesale | -3.87% | 12.90% | 13.12% | 8.26% | 11.97% |
| Consumer Staples | -11.21% | 1.75% | 8.84% | 8.62% | 11.15% |
| Medical | -5.42% | 3.92% | 7.48% | 3.07% | 6.59% |
| Conglomerates | 6.21% | -1.32% | 5.99% | 1.80% | 3.73% |
| Business Service | 19.46% | -10.93% | 5.04% | 4.18% | 4.21% |
| Utilities | -11.60% | 2.80% | 4.97% | 3.15% | 4.16% |
| Auto | -18.21% | 6.45% | -22.22% | -9.06% | 19.23% |
| S&P | -2.92% | 3.38% | 33.77% | 30.42% | 36.52% |
Expected Quarterly Growth: Total Net Income
- Total net income for the S&P 500 in the third quarter of 2010 is expected to rise 13.8% over third quarter of 2009 levels.
- Slowdown from the 37.4% growth those same firms had in the second quarter. A rebound to 15.8% growth expected in the fourth quarter.
- Total third quarter net income expected to be 5.1% below second quarter levels. However, fourth quarter net income is expected to rise 2.5% over third quarter levels.
- Eight sectors expected to post double-digit third quarter year-over-year growth; only Aerospace, Conglomerates and Staples are expected to have negative growth. Seven sectors expected to post growth over 25%. Cyclical sectors in the lead.
- Sequential picture much more downbeat, with only seven sectors expected to actually have higher net income in this quarter than in the second quarter. When looking at growth, the base you are growing from matters as much as the levels you are growing to.
| Quarterly Growth: Total Net Income Expected | |||||
|---|---|---|---|---|---|
| Income Growth | Sequential Q4/Q3 E | Sequential Q3/Q2 E | Year over Year 3Q 10 E | Year over Year 4Q 10 E | Year over Year 2Q 10 A |
| Construction | -13.64% | -26.11% | 573.19% | 24.58% | 741.03% |
| Auto | 2.17% | -38.58% | 49.91% | -3.63% | 465.61% |
| Basic Materials | -0.99% | -19.81% | 45.30% | 28.95% | 179.41% |
| Oils and Energy | 2.87% | -12.46% | 39.19% | 26.58% | 111.37% |
| Industrial Products | -13.11% | -11.36% | 30.08% | 23.46% | 32.98% |
| Transportation | -4.93% | 2.26% | 29.84% | 21.31% | 47.33% |
| Computer and Tech | 10.29% | 2.92% | 27.33% | 4.25% | 50.65% |
| Business Service | 11.98% | 1.44% | 13.16% | 15.92% | 23.12% |
| Retail/Wholesale | 46.85% | -13.78% | 6.31% | 5.52% | 8.84% |
| Medical | -1.93% | -10.33% | 5.70% | 4.14% | 24.41% |
| Consumer Discretionary | 29.45% | -13.41% | 2.67% | 5.42% | 27.08% |
| Utilities | -35.19% | 34.89% | 1.80% | 7.03% | 10.07% |
| Finance | -19.16% | 1.49% | 0.73% | 165.13% | -3.37% |
| Aerospace | 10.28% | -7.47% | -3.43% | 11.54% | 7.03% |
| Conglomerates | 0.26% | 14.52% | -4.56% | 28.05% | -12.93% |
| Consumer Staples | 1.61% | 6.35% | -4.78% | -2.04% | 3.11% |
| S&P | 2.50% | -5.07% | 13.84% | 15.77% | 37.40% |
Quarterly Growth: Total Revenues Reported
This table shows the growth of the 159 firms that have actually reported.
- Seven? sectors reporting double-digit revenue growth, financials the biggest drag on revenue growth. Revenue growth excluding the financials is 10.1%, down from 11.5% in the second quarter.
- S&P 500 reported revenues up 5.48% year over year in 3Q, down from 9.44% revenue increase the same firms showed in the 2Q. This is a very healthy level of revenue growth, but the sample size is small and un-representative.
| Quarterly Growth: Total Revenues Reported | |||||
|---|---|---|---|---|---|
| Sales Growth | Sequential Q4/Q3 E | Sequential Q3/Q2 A | Year over Year 3Q 10 A | Year over Year 4Q 10 E | Year over Year 2Q 09 A |
| Industrial Products | -4.45% | 4.18% | 36.00% | 27.08% | 29.63% |
| Computer and Tech | -3.42% | 5.32% | 27.01% | 16.92% | 27.48% |
| Oils and Energy | 11.89% | 8.55% | 21.49% | 27.02% | 17.16% |
| Basic Materials | 7.85% | 1.93% | 16.59% | 9.23% | 17.44% |
| Transportation | 0.77% | 1.02% | 14.49% | 11.76% | 17.43% |
| Construction | -23.52% | 1.35% | 14.42% | -11.82% | -8.74% |
| Auto | -5.69% | 3.65% | 13.20% | 9.87% | 12.31% |
| Consumer Staples | -23.75% | 0.26% | 9.43% | -10.25% | 11.12% |
| Consumer Discretionary | -15.15% | 16.89% | 6.69% | 5.98% | 8.59% |
| Retail/Wholesale | 3.27% | 6.44% | 6.19% | 6.08% | 6.69% |
| Business Service | 2.48% | 0.49% | 5.94% | 5.17% | 4.66% |
| Medical | 3.97% | -0.37% | 5.02% | 4.19% | 6.12% |
| Aerospace | -4.30% | 4.65% | 3.07% | -1.99% | -3.90% |
| Utilities | -0.76% | 3.79% | 2.75% | 1.34% | 1.10% |
| Conglomerates | -2.93% | -3.11% | -1.09% | 0.24% | 0.59% |
| Finance | -1.03% | -6.62% | -7.85% | -6.48% | -4.59% |
| S&P | 0.95% | 0.95% | 5.78% | 3.18% | 6.23% |
Quarterly Growth: Total Revenues Expected
- Total revenue for the S&P 500 expected to grow 4.68% from a year ago, a sharp slowdown from the 13.09% year-over-year growth posted in the second quarter. Revenue growth of 1.63% is now expected for the fourth quarter.
- Revenue for the financials is the principal source of the revenue slowdown. Low interest rates depress interest income, which is a major part of financials revenue, but also reduce interest expense. As a result, revenues at Financials are notoriously flakey.
- Excluding financials, total revenues expected to grow 8.83%, down from 12.68% in the second quarter.
- Seven sectors expected to post double-digit revenue growth in the third quarter, six of which also posted double-digit growth in the second quarter and are expected be among the leaders again in the fourth quarter. High revenue growth in Energy and Materials is largely a function of commodity prices.
| Quarterly Growth: Total Revenues Expected | |||||
|---|---|---|---|---|---|
| Sales Growth | Sequential Q4/Q3 E | Sequential Q3/Q2 E | Year over Year 3Q 10 E | Year over Year 4Q 10 E | Year over Year 2Q 10 A |
| Transportation | -1.05% | 2.66% | 29.99% | 21.28% | 36.83% |
| Basic Materials | 1.03% | -4.35% | 14.39% | 8.54% | 18.92% |
| Oils and Energy | 2.12% | -0.70% | 13.94% | 8.61% | 28.38% |
| Industrial Products | -2.95% | 2.05% | 13.08% | 12.99% | 10.91% |
| Utilities | -1.93% | 22.08% | 11.54% | 9.77% | 0.17% |
| Computer and Tech | 7.42% | -0.25% | 11.28% | 7.24% | 18.21% |
| Medical | 2.08% | -0.15% | 10.38% | 2.32% | 11.60% |
| Business Service | 4.68% | 1.02% | 6.21% | 5.74% | 7.41% |
| Retail/Wholesale | -2.02% | 0.69% | 5.85% | -8.33% | 3.36% |
| Aerospace | 6.44% | 2.56% | 4.05% | 6.72% | -0.40% |
| Consumer Staples | 4.48% | 0.10% | 2.75% | 2.95% | 4.90% |
| Conglomerates | 0.43% | -2.14% | 2.61% | 2.86% | 8.74% |
| Consumer Discretionary | 9.34% | -0.06% | 1.99% | 3.54% | 7.75% |
| Construction | -4.23% | -2.74% | 1.82% | -3.55% | 8.78% |
| Auto | 4.99% | -11.99% | -0.74% | -7.82% | 26.91% |
| Finance | -2.51% | -34.17% | -33.14% | -36.93% | 17.27% |
| S&P 500 | 1.63% | -2.64% | 4.68% | -1.23% | 13.09% |
| S&P 500 | 1.91% | 0.61% | 8.83% | 1.91% | 12.68% |
Quarterly Net Margins Reported
- This is only for the 159 firms that have already reported, calculated as total net income for the sector divided by total revenues for the sector. As more firms report, both the reported and estimated net margins are expected to change significantly.
- Net margins for S&P 500 expand to 11.72% from 9.72% a year ago, and up from the 11.45% reported by these same firms in the second quarter. Net margins ex-financials rose to 11.09% from 9.64% a year ago.
- Fourteen sectors reporting year-over-year increase in margins, ten see sequential improvement.
- Some sectors will see bigger seasonal swings in margins than others.
- Six sectors reporting double-digit net margins so far.
| Quarterly: Net Margins Reported | ||||||
|---|---|---|---|---|---|---|
| Net Margins | Q4 2010 Estimated | Q3 2010 Reported | 2Q 2010 Reported | 1Q 2010 Reported | 4Q 2009 Reported | 3Q 2009 Reported |
| Computer and Tech | 19.54% | 18.56% | 18.70% | 17.28% | 18.63% | 15.62% |
| Oils and Energy | 15.96% | 16.14% | 15.91% | 15.15% | 15.38% | 15.89% |
| Medical | 13.89% | 15.42% | 14.78% | 15.13% | 14.04% | 15.06% |
| Consumer Discretionary | 8.05% | 14.14% | 8.71% | 7.26% | 8.03% | 12.59% |
| Consumer Staples | 14.47% | 14.08% | 13.88% | 13.37% | 11.96% | 14.16% |
| Finance | 13.35% | 14.05% | 13.50% | 12.34% | 4.83% | 8.11% |
| Utilities | 8.60% | 9.45% | 9.54% | 9.20% | 8.45% | 9.25% |
| Conglomerates | 8.19% | 8.47% | 8.32% | 6.41% | 8.07% | 7.91% |
| Basic Materials | 8.80% | 8.33% | 9.02% | 12.29% | 7.80% | 7.60% |
| Transportation | 7.73% | 8.23% | 8.00% | 5.88% | 6.63% | 5.48% |
| Industrial Products | 7.32% | 7.98% | 7.53% | 5.54% | 5.65% | 6.50% |
| Business Service | 8.63% | 7.87% | 8.88% | 7.53% | 8.71% | 7.94% |
| Aerospace | 6.23% | 5.85% | 6.46% | 5.02% | 7.43% | -1.11% |
| Retail/Wholesale | 4.25% | 4.57% | 4.31% | 4.96% | 4.17% | 4.29% |
| Auto | 3.98% | 4.47% | 4.36% | 3.88% | 4.01% | 4.14% |
| Construction | 0.63% | 3.64% | 4.91% | -1.22% | -5.03% | -5.13% |
| S&P 500 | 11.40% | 11.72% | 11.45% | 10.68% | 8.92% | 9.27% |
| S&P ex Fin’l | 10.90% | 11.09% | 10.83% | 10.11% | 10.11% | 9.64% |
Quarterly Net Margins Expected
- Net margins (among the 341 yet to report) expected to rise to 7.52% from 6.92% a year ago.
- Sequentially margins expected to fall from 7.60% in the second quarter but rebound to 7.35% in the fourth quarter.
- Tech, Staples and Business Service consistently have double-digit net margins.
- Ten sectors expected to see year-over-year growth in margins, six see declines.
- Only six expected to see sequential improvement in margins, ten see declines.
- Construction and Finance to see largest year over year increases.
| Quarterly: Net Margins Expected | ||||||
|---|---|---|---|---|---|---|
| Net Margins | Q4 2010 Estimated | Q3 2010 Estimated | 2Q 2010 Reported | 1Q 2010 Reported | 4Q 2009 Reported | 3Q 2009 Reported |
| Computer and Tech | 14.64% | 14.26% | 13.82% | 14.00% | 15.06% | 12.46% |
| Finance | 11.36% | 13.70% | 8.89% | 9.37% | 2.70% | 9.10% |
| Business Service | 13.61% | 12.72% | 12.67% | 12.48% | 12.41% | 11.94% |
| Conglomerates | 11.61% | 11.63% | 9.94% | 11.26% | 9.33% | 12.51% |
| Consumer Staples | 9.16% | 9.42% | 8.87% | 9.04% | 9.63% | 10.16% |
| Transportation | 8.66% | 9.01% | 9.05% | 7.29% | 8.66% | 9.02% |
| Utilities | 5.39% | 8.16% | 7.39% | 7.19% | 5.53% | 8.94% |
| Consumer Discretionary | 9.27% | 7.83% | 9.04% | 9.81% | 9.10% | 7.78% |
| Medical | 7.35% | 7.65% | 8.52% | 8.40% | 7.22% | 7.99% |
| Industrial Products | 6.52% | 7.28% | 8.39% | 7.32% | 5.97% | 6.33% |
| Oils and Energy | 6.65% | 6.60% | 7.49% | 6.85% | 5.71% | 5.40% |
| Aerospace | 6.69% | 6.45% | 7.15% | 6.92% | 6.40% | 6.95% |
| Basic Materials | 5.34% | 5.45% | 6.50% | 5.54% | 4.50% | 4.29% |
| Auto | 4.32% | 4.44% | 6.36% | 5.18% | 4.13% | 2.94% |
| Retail/Wholesale | 4.85% | 3.24% | 3.78% | 3.42% | 4.21% | 3.22% |
| Construction | 2.47% | 2.74% | 3.60% | 1.89% | 1.91% | 0.41% |
| S&P 500 | 7.59% | 7.52% | 7.72% | 7.49% | 6.47% | 6.92% |
| S&P ex Fin’l | 7.35% | 7.11% | 7.60% | 7.30% | 6.87% | 6.68% |
Annual Total Net Income Growth
- Total S&P 500 Net Income in 2009 was 1.45% above 2008 levels, following a 34.6% plunge in 2008.
- Total earnings for the S&P 500 expected to jump 42.5% in 2010, 11.0% further in 2011.
- Earnings recovery to happen by mid-2011, full-year 2011 earnings to be 5.0% above 2007 levels. In other words, the recovery in earnings will occur far before the recovery in jobs, as we are unlikely to return to 2007 job levels until late 2013 at the earliest.
- Autos, Finance, Basic Materials and Energy expected to be earnings growth leaders in 2010. Construction expected to move from the red to the black. No sector expected to see earnings decline in 2010.
- Retail, Medical and Business Service the only sectors to post positive earnings growth in every year from 2008 through 2011.
- All but four sectors expected to post double-digit growth in 2011.
- Thirteen sectors expected to grow slower in 2011 than 2010, only three to see growth accelerate (all slow growers in 2010).
| Annual Total Net Income Growth | ||||
|---|---|---|---|---|
| Net Income Growth | 2008 | 2009 | 2010 | 2011 |
| Construction | + to - | - to - | - to + | 29.43% |
| Auto | + to - | - to + | 1934.22% | 12.87% |
| Finance | + to - | - to + | 323.01% | 13.75% |
| Basic Materials | -4.86% | -49.89% | 65.27% | 19.11% |
| Oils and Energy | 20.80% | -56.30% | 49.08% | 11.61% |
| Computer and Tech | 15.01% | -4.23% | 44.35% | 11.14% |
| Transportation | 1.03% | -30.14% | 41.69% | 19.02% |
| Industrial Products | 5.32% | -36.72% | 36.45% | 20.46% |
| Consumer Discretionary | 6.27% | -15.88% | 22.43% | 12.41% |
| Business Service | 27.33% | 1.05% | 14.18% | 15.39% |
| Retail/Wholesale | 1.42% | 2.56% | 13.30% | 12.15% |
| Aerospace | 13.37% | -14.63% | 13.09% | 4.87% |
| Consumer Staples | -7.30% | 5.64% | 11.35% | 6.08% |
| Medical | 9.29% | 2.19% | 7.63% | 5.50% |
| Conglomerates | -9.23% | -23.84% | 2.01% | 15.49% |
| Utilities | -1.29% | -13.51% | 1.53% | 6.05% |
| S&P | -34.56% | 1.45% | 42.46% | 10.97% |
Annual Total Revenue Growth
- Total S&P 500 Revenue in 2009 6.75% below 2008 levels.
- Total revenues for the S&P 500 expected to rise 4.93% in 2010, 6.05% in 2011.
- Tech to lead 2010 revenue race, Energy and Industrials to take silver and bronze, but Transportation and Materials have a chance to make it on to the medal stand.
- All sectors expected to show positive top-line growth in 2011.
- Financials are the biggest drag on 2010 revenue growth; Staples the only other sector expected to post a lower top-line for the year. Revenues for financials are notoriously flakey — low interest rates depress interest income (but also interest expense).
- Revenue growth significantly different if financials are excluded, down 10.46% in 2009, growth of 8.38% in 2010 and 7.01% in 2011.
- Medical, Retail and Aerospace only sectors to have positive revenue growth for all three years.
- Looking out to 2011, Energy is the only sector expected to see double-digit revenue growth, although four other sectors expected to have revenue growth over 8%.
| Annual Total Revenue Growth | |||
|---|---|---|---|
| Sales Growth | 2009 | 2010 | 2011 |
| Computer and Tech | -6.22% | 20.93% | 7.72% |
| Oils and Energy | -34.49% | 19.26% | 13.06% |
| Industrial Products | -19.55% | 14.46% | 9.57% |
| Transportation | -13.65% | 13.77% | 8.11% |
| Basic Materials | -19.30% | 13.61% | 6.87% |
| Medical | 6.06% | 9.62% | 3.33% |
| Business Service | -2.35% | 7.08% | 6.10% |
| Consumer Discretionary | -9.55% | 6.94% | 6.99% |
| Auto | -21.36% | 5.73% | 9.49% |
| Retail/Wholesale | 1.25% | 5.39% | 5.43% |
| Utilities | -5.87% | 3.82% | 2.71% |
| Conglomerates | -13.27% | 0.81% | 2.12% |
| Aerospace | 6.30% | 0.36% | 6.03% |
| Construction | -15.92% | 0.34% | 8.94% |
| Consumer Staples | -2.13% | -0.82% | 4.03% |
| Finance | 21.16% | -19.37% | 1.99% |
| S&P 500 | -6.75% | 4.93% | 6.05% |
| S&P x Fin’l | -10.46% | 8.38% | 7.01% |
Annual Net Margins
- Net Margins marching higher, from 5.90% in 2008 to 6.42% in 2009 to 8.78% expected for 2010, 9.12% expected for 2011. Major source of earnings growth.
- Financials significantly distort overall net margins. Net margins ex-financials 7.81% in 2008, 7.13% in 2009, 8.24% expected for 2010, 8.50% in 2011.
- Financials net margins soar from -8.50% in 2008 to 14.32% expected for 2011.
- Fourteen sectors seeing higher net margins in 2010 than in 2009. All sectors expected to post higher net margins in 2011 than in 2010.
| Annual Net Margins | |||||
|---|---|---|---|---|---|
| Net Margins | 2008A | 2009A | 2010E | 2011E | |
| Computer and Tech | 12.31% | 12.57% | 15.86% | 15.48% | |
| Finance | -8.50% | 2.45% | 12.85% | 14.32% | |
| Business Service | 10.76% | 11.13% | 12.03% | 12.91% | |
| Consumer Staples | 9.25% | 9.99% | 10.59% | 11.43% | |
| Medical | 10.16% | 9.78% | 9.70% | 9.81% | |
| Consumer Discretionary | 8.05% | 7.49% | 8.71% | 9.01% | |
| Conglomerates | 9.31% | 8.18% | 8.30% | 9.36% | |
| Utilities | 8.76% | 8.04% | 7.87% | 8.12% | |
| Oils and Energy | 9.13% | 6.09% | 7.62% | 7.52% | |
| Transportation | 7.30% | 5.91% | 7.55% | 8.10% | |
| Industrial Products | 7.47% | 5.88% | 7.16% | 7.71% | |
| Basic Materials | 7.19% | 4.47% | 6.62% | 7.24% | |
| Aerospace | 6.81% | 5.47% | 6.18% | 6.09% | |
| Auto | -2.77% | 0.25% | 4.81% | 4.89% | |
| Retail/Wholesale | 3.51% | 3.56% | 3.86% | 4.07% | |
| Construction | -2.32% | -0.10% | 2.79% | 3.31% | |
| S&P 500 | 5.90% | 6.42% | 8.78% | 9.12% | |
| S&P ex Financials | 7.81% | 7.13% | 8.24% | 8.50% | |
Revisions: Earnings
The Zacks Revisions Ratio: 2010
- Revisions ratio for full S&P 500 at 1.85, up from 1.36 last week, now a bullish reading.
- Transportation very strong, but four other sectors have revisions ratios above 3.00.
- Fourteen sectors with positive revisions ratios, only two below 1.0.
- Ratio of firms with rising to falling mean estimates at 1.70 up from 1.51 last week, a bullish reading.
- Total number of revisions (4-week total) down to 2,670 from 2.216 (20.5%).
- Increases up to 1,733 from 1,278 (35.6%), cuts down to 937 from 938 (-0.0%).
- Total Revisions activity increasing. They are likely to double from current levels over the next month. Changes in the revisions ratios will be more driven by new estimates being made rather than old estimates dropping out.
| The Zacks Revisions Ratio: 2010 | |||||||
|---|---|---|---|---|---|---|---|
| Sector | %Ch Curr Fiscal Yr Est – 4 wks | # Firms Up | # Firms Down | # Ests Up | # Ests Down | Revisions Ratio | Firms up/down |
| Transportation | 1.33 | 8 | 1 | 56 | 2 | 28.00 | 8.00 |
| Auto | 1.50 | 6 | 0 | 27 | 7 | 3.86 | 999.99 |
| Retail/Wholesale | 0.62 | 30 | 13 | 237 | 68 | 3.49 | 2.31 |
| Conglomerates | 5.92 | 7 | 2 | 20 | 6 | 3.33 | 3.50 |
| Medical | 0.96 | 37 | 10 | 183 | 58 | 3.16 | 3.70 |
| Industrial Products | 2.15 | 16 | 3 | 46 | 17 | 2.71 | 5.33 |
| Business Service | 0.22 | 10 | 7 | 54 | 20 | 2.70 | 1.43 |
| Computer and Tech | -0.05 | 35 | 24 | 242 | 114 | 2.12 | 1.46 |
| Consumer Staples | -0.13 | 22 | 12 | 80 | 40 | 2.00 | 1.83 |
| Finance | 4.92 | 44 | 31 | 401 | 252 | 1.59 | 1.42 |
| Consumer Discretionary | -0.50 | 19 | 12 | 94 | 63 | 1.49 | 1.58 |
| Aerospace | -0.50 | 7 | 3 | 25 | 19 | 1.32 | 2.33 |
| Utilities | 0.09 | 21 | 15 | 67 | 53 | 1.26 | 1.40 |
| Oils and Energy | 0.18 | 17 | 19 | 159 | 156 | 1.02 | 0.89 |
| Basic Materials | -4.22 | 12 | 10 | 36 | 41 | 0.88 | 1.20 |
| Construction | -2.92 | 1 | 10 | 6 | 21 | 0.29 | 0.10 |
| S&P | 0.85 | 292 | 172 | 1733 | 937 | 1.85 | 1.70 |
Revisions: Earnings
The Zacks Revisions Ratio: 2011
- Revisions ratio for full S&P 500 at 1.22 up from 1.07, still in neutral territory.
- Transportation, Autos and Industrials have at least five increases per cut.
- Seven sectors with negative revisions ratios, nine with ratios above 1.0.
- Ratio of firms with rising estimate to falling mean estimates at 1.11 up from 1.06; still a neutral reading.
- Construction and Aerospace sectors look very weak for 2011 — three or more cuts per increase.
- Total number of revisions (4-week total) at 2,110, up from 1,740 (21.3%).
- Increases up to 1092 from 829 (31.7%) cuts rise to 1018 from 911 (11.7%).
| The Zacks Revisions Ratio: 2011 | |||||||
|---|---|---|---|---|---|---|---|
| Sector | %Ch Next Fiscal Yr Est – 4 wks | # Firms Up | # Firms Down | # Ests Up | # Ests Down | Revisions Ratio | Firms up/down |
| Transportation | 1.02 | 8 | 0 | 61 | 4 | 15.25 | 999.99 |
| Auto | 1.49 | 5 | 1 | 23 | 4 | 5.75 | 5.00 |
| Industrial Products | 0.94 | 16 | 1 | 62 | 11 | 5.64 | 16.00 |
| Retail/Wholesale | 0.48 | 27 | 15 | 186 | 71 | 2.62 | 1.80 |
| Consumer Discretionary | -0.67 | 16 | 15 | 86 | 52 | 1.65 | 1.07 |
| Business Service | -0.06 | 10 | 5 | 36 | 23 | 1.57 | 2.00 |
| Medical | 0.54 | 31 | 15 | 166 | 110 | 1.51 | 2.07 |
| Computer and Tech | -0.38 | 31 | 30 | 196 | 137 | 1.43 | 1.03 |
| Consumer Staples | -0.23 | 19 | 16 | 81 | 57 | 1.42 | 1.83 |
| Oils and Energy | -1.44 | 14 | 23 | 163 | 166 | 0.98 | 0.61 |
| Basic Materials | -0.17 | 16 | 7 | 41 | 42 | 0.98 | 2.29 |
| Finance | -2.61 | 33 | 42 | 273 | 329 | 0.83 | 0.79 |
| Utilities | -0.92 | 14 | 24 | 54 | 87 | 0.62 | 0.58 |
| Construction | -5.40 | 1 | 10 | 9 | 19 | 0.47 | 0.10 |
| Conglomerates | -0.75 | 2 | 6 | 8 | 24 | 0.33 | 0.33 |
| Aerospace | -1.75 | 0 | 9 | 14 | 60 | 0.23 | 0.00 |
| S&P | -0.72 | 243 | 219 | 1459 | 1196 | 1.22 | 1.11 |
Total Income and Share
- S&P 500 earned $546.2 billion in 2009, expected to earn $778.0 billion in 2010, $863.4 billion in 2011.
- Finance share of total earnings moves from 5.8% in 2009 to 17.4% in 2010, 17.7% in 2011, regains total earnings crown.
- Medical share of total earnings far exceeds market cap share (index weight), but earnings share expected to shrink from 17.3% in 2009 to 12.5% in 2011.
- Market Cap shares of Construction, Retail, Transportation, Industrials and Business Service sectors far exceed both 2010 and 2011 earnings shares.
- Finance, Energy and Autos have rising earnings shares and market-cap shares well below 2011 earnings shares.
- Staples, Utilities and Medical’s share of total net income falling rapidly.
| Total Income and Share | |||||||
|---|---|---|---|---|---|---|---|
| Income ($ Bill) | Total Net Income $ 2009 | Total Net Income $ 2010 | Total Net Income $ 2011 | % Total S&P Earn 2009 | % Total S&P Earn 2010 | % Total S&P Earn 2011 | % Total S&P Mkt Cap |
| Finance | $31,745 | $134,283 | $152,744 | 5.81% | 17.26% | 17.69% | 15.57% |
| Computer and Tech | $92,295 | $133,225 | $148,069 | 16.90% | 17.12% | 17.15% | 18.28% |
| Medical | $94,643 | $101,865 | $107,470 | 17.33% | 13.09% | 12.45% | 10.76% |
| Oils and Energy | $62,732 | $93,520 | $104,380 | 11.49% | 12.02% | 12.09% | 10.64% |
| Consumer Staples | $57,382 | $63,896 | $67,784 | 10.51% | 8.21% | 7.85% | 8.91% |
| Retail/Wholesale | $50,915 | $57,689 | $64,697 | 9.32% | 7.41% | 7.49% | 8.44% |
| Utilities | $49,742 | $50,504 | $53,559 | 9.11% | 6.49% | 6.20% | 6.41% |
| Consumer Discretionary | $23,177 | $28,375 | $31,896 | 4.24% | 3.65% | 3.69% | 4.34% |
| Conglomerates | $26,275 | $26,804 | $30,954 | 4.81% | 3.45% | 3.59% | 3.75% |
| Basic Materials | $13,459 | $22,243 | $26,494 | 2.46% | 2.86% | 3.07% | 3.29% |
| Aerospace | $13,054 | $14,763 | $15,481 | 2.39% | 1.90% | 1.79% | 1.70% |
| Industrial Products | $10,617 | $14,487 | $17,451 | 1.94% | 1.86% | 2.02% | 2.31% |
| Business Service | $11,522 | $13,155 | $15,180 | 2.11% | 1.69% | 1.76% | 2.11% |
| Transportation | $8,202 | $11,621 | $13,832 | 1.50% | 1.49% | 1.60% | 1.96% |
| Auto | $471 | $9,589 | $10,824 | 0.09% | 1.23% | 1.25% | 1.05% |
| Construction | ($73) | $2,013 | $2,606 | -0.01% | 0.26% | 0.30% | 0.48% |
| S&P | $546,156 | $778,032 | $863,420 | 100.00% | 100.00% | 100.00% | 100.00% |
P/E Ratios
- Trading at 14.4x 2010, 13.0x 2011 earnings or earnings yields of 6.94% and 7.69%, respectively.
- Earnings Yields extremely attractive relative to 10-year T-Note rate of 2.57%.
- Medical has lowest P/E based on 2010 earnings. Autos, Finance, Energy and Medical cheapest based on 2011 earnings.
- Construction has highest P/E for 2010 and 2011.
- Auto and Finance high 2009 P/E’s to fall dramatically in 2010 and 2011.
- S&P 500 earned $57.57 in 2009: $81.96 in 2010 and $90.78 in 2011 expected.
| P/E Ratios | ||||
|---|---|---|---|---|
| P/E | 2008 | 2009 | 2010 | 2011 |
| Medical | 13.0 | 12.7 | 11.8 | 11.2 |
| Oils and Energy | NM | 249.9 | 12.3 | 10.9 |
| Aerospace | 8.3 | 19.0 | 12.7 | 11.4 |
| Finance | 12.4 | 14.6 | 12.9 | 12.3 |
| Auto | NM | 54.9 | 13.0 | 11.4 |
| Utilities | 12.5 | 14.4 | 14.2 | 13.4 |
| Basic Materials | 21.2 | 22.2 | 15.4 | 13.8 |
| Consumer Staples | 18.4 | 17.4 | 15.6 | 14.7 |
| Conglomerates | 12.1 | 16.0 | 15.6 | 13.5 |
| Computer and Tech | 19.0 | 18.6 | 16.4 | 14.6 |
| Retail/Wholesale | 13.7 | 27.4 | 16.6 | 13.9 |
| Consumer Discretionary | 17.6 | 20.9 | 17.1 | 15.2 |
| Industrial Products | 15.4 | 24.4 | 17.9 | 14.8 |
| Busines Service | 20.7 | 20.5 | 17.9 | 15.5 |
| Transportation | 18.7 | 26.8 | 18.9 | 15.9 |
| Construction | NM | NM | 26.4 | 20.4 |
| S&P 500 | 20.8 | 20.5 | 14.4 | 13.0 |
Data in this report, unless stated otherwise, is through the close on Thursday 10/21/2010.
We use the convention of referring to the next full fiscal year to be completed as 2010, not all firms are on December fiscal years, this can cause discontinuities in the data, particularly around this time of year. The data is based on FY1, not based on 2010, even though I may call it 2010 in the report. All numbers, including historical ones, reflect the current composition of the S&P 500, thus some historical numbers may differ from those reported by S&P which are based on the composition of the index at the time of the reports.
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.
More about Zacks Strategic Investor >>
——————————————————————————————————————————————————
The content on this site is provided as general information only and should not be taken as investment advice. All site content shall not be construed as a recommendation to buy or sell any security or financial product, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The opinions of all guest authors or contributors can and will differ from those of Mr. Roche. These opinions do not necessarily represent the opinions or investment decisions of Mr. Roche. The author(s) may or may not have a position in any security referenced herein and may or may not seek to do business with one another or companies mentioned via this website. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.
A brief note on comments – The increase in users in recent months has resulted in an increase in unproductive comments. Any user who engages in the use of racial epithets or uses the comment section as a place to insult other users will be banned from the site. The comment section is welcome to all readers who are interested in asking pertinent questions and/or engaging in thoughtful, intelligent, and productive debate. In short, just be nice. Thanks.
Post Footer automatically generated by Add Post Footer Plugin for wordpress.
This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured article: Beyond Hiroshima - The Non-Reporting of Falluja's Cancer Catastrophe.
No comments:
Post a Comment