Still Seeing Upward Revisions For S&P 500 Estimates

The article highlights the continued upward revisions for S&P 500 estimates, specifically focusing on S&P 500 earnings. The forward 4-quarter estimate (FFQE) rose slightly from the previous week, indicating a positive trend. Despite a small decrease in the S&P 500 “earnings yield,” the overall S&P 500 EPS and earnings estimate revisions remain healthy. The article also touches on the performance of specific companies, such as Oracle, Lennar, and Adobe, in relation to earnings reports. The author emphasizes that the S&P 500 EPS data indicates a positive outlook for the benchmark, with expectations of growth in the coming years.

Companies Reporting Earnings

Oracle (ORCL)

Oracle is one of the companies reporting earnings next week. The company has been in the software industry for several years and has faced challenges in transitioning to the cloud. While the introduction of AI may provide some opportunities, judgment on its impact on Oracle’s growth will be reserved for now.

Lennar (LEN)

Lennar, a home construction company, will also be reporting its earnings next week. The company’s performance may be influenced by the potential 5% new homebuyer tax credit, which could impact new home purchases as buyers await election results. Lennar has been held in a few client accounts and has been followed by this blog since the late 1990s.

Adobe (ADBE)

Adobe, a renowned software company, is another company that will be reporting its earnings next week. Like Oracle, Adobe has also faced challenges in the transition to the cloud, but its impact on the company’s growth remains to be seen.

Overview of S&P 500 Estimates

Forward 4-quarter estimate (FFQE)

The forward 4-quarter estimate (FFQE) for the S&P 500 rose from $243.23 to $243.29 this week. While this may not seem like a significant increase, it is worth noting that the typical trend for FFQE is lower. Therefore, the fact that it is rising at all is considered a positive sign.

P/E ratio on the forward estimate

The P/E ratio on the forward estimate for the S&P 500 is approximately 21x. This indicates the valuation of the stocks in the index relative to their expected earnings for the next four quarters.

Earnings yield

The S&P 500 “earnings yield” fell 1 basis point this week to 4.72% from 4.73% last week. The earnings yield represents the earnings expected from the stocks in the index relative to their current market price.

Q4 ’23 S&P 500 EPS Surprise

Percentage of upside surprise

The “upside surprise” for Q4 ’23 S&P 500 EPS remains healthy at 6.3%, which indicates that actual earnings for the quarter exceeded expectations. This is slightly lower than the 7.2% upside surprise in Q3 ’23.

Comparison to Q3 ’23

Compared to Q3 ’23, where the upside surprise was higher, the Q4 ’23 EPS surprise showed a slight decrease. This suggests that while earnings still exceeded expectations, the growth rate may have slowed down.

Q4 ’23 S&P 500 Revenue Surprise

Percentage of upside surprise

The Q4 ’23 S&P 500 revenue surprise showed a small upside surprise of +1.3% compared to Q3 ’23, where the surprise was +0.9%. This indicates that actual revenue for Q4 ’23 exceeded the estimated revenue.

Comparison to Q3 ’23

Compared to Q3 ’23, the Q4 ’23 revenue surprise showed a slight increase. This suggests that while earnings growth may have slowed down, revenue growth remained relatively stable.

Fish-Hook Effect on EPS Revisions

Typical trend of downward revisions

Normally, EPS revisions tend to be downward as forward EPS tends to slide. However, in the current period, the FFQE has remained stable despite typical revision activity. This suggests that there may be some resilience in EPS estimates.

Current FFQE comparison

Compared to previous quarters, the current FFQE has remained relatively stable, which is a positive sign considering the typical downward trend. This indicates that earnings estimates for the S&P 500 have shown consistency.

Strong Finish to 2023 EPS Estimates

Sector-wise growth rate

In late October ’23 through March 8 ’24, the S&P 500 EPS estimates for full-year 2023 showed a strong finish. The expected growth rate for the technology sector more than doubled in the last 12 weeks, contributing to the overall growth of the index.

Tech sector’s contribution to overall growth

The technology sector played a significant role in the strong finish of the S&P 500 EPS estimates for 2023. Its expected growth rate increased substantially, indicating that technology companies have been driving the overall growth of the index.

Rate of Change in EPS Estimates

Positive changes in the past 4 weeks

In the past 4 weeks, there has been a positive rate of change in the S&P 500 EPS estimates. This means that the estimates for future earnings have been revised upwards, indicating optimism about the companies’ performance.

Positive changes in the past 12 weeks

Similarly, in the past 12 weeks, there has been a positive rate of change in the S&P 500 EPS estimates. This further reinforces the positive sentiment and suggests that the companies’ earnings are expected to improve.

Expected S&P 500 EPS Growth Rates

2025 growth rate and estimate

The expected growth rate for S&P 500 EPS in 2025 is +13%, with an estimate of $276.00. This indicates that analysts are optimistic about the earnings growth of the companies in the index in the long term.

2024 growth rate and estimate

The expected growth rate for S&P 500 EPS in 2024 is +10%, with an estimate of $243.36. This shows a positive outlook for earnings growth in the near future.

2023 growth rate and estimate

The expected growth rate for S&P 500 EPS in 2023 is +2%, with an estimate of $222.05. While the growth rate may be relatively low, it is still positive and indicates a steady increase in earnings.

Stability of 2024 EPS Estimate

Consistency despite Q4 ’23 guidance

Despite the detailed guidance provided during the Q4 ’23 earnings releases, the 2024 EPS estimate of $243.36 has remained stable since early January ’24. This suggests that analysts have not significantly revised their estimates based on the guidance, indicating stability in the projections.

Important Considerations for Investors

Past performance not indicative of future results

It is important for investors to remember that past performance is not indicative of future results. While the S&P 500 EPS estimates have shown positive trends, there is no guarantee that the companies’ performance will continue to exceed expectations.

Evaluation of market and portfolio volatility

Investors should always evaluate their comfort with market and portfolio volatility. It is crucial to assess one’s risk tolerance and adjust investment strategies accordingly. Market conditions can change rapidly, and it is important to stay informed and make informed decisions based on individual circumstances.

In conclusion, the S&P 500 EPS estimates have shown positive trends, with companies reporting earnings exceeding expectations. Despite challenges faced by some companies in transitioning to the cloud, overall EPS and earnings estimates for the S&P 500 remain healthy. The strong finish to the 2023 EPS estimates, especially in the technology sector, indicates robust growth potential. However, investors should always consider important factors such as past performance, market volatility, and portfolio evaluation when making investment decisions.