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EPS and Revenue Growth Expectations

10/10/2012
Third quarter earnings and revenue will be reported over the next few weeks. Consensus estimates for the overall S&P 500® Index (SPX) EPS growth is -1.7% and revenue growth of -0.6%. Negative earnings growth for Q3 would be the first such condition since the third quarter of 2009.
 
Whether the contribution from earnings is favorable or unfavorable, the sentiment surrounding the results may quickly fade with the U.S. presidential election and pending fiscal cliff quickly approaching.
 
For the upcoming earnings season…
 
•  Currency headwinds may not be as strong as guided to in the previous quarter, an obviously positive condition.
 
•  Earnings revisions have set the bar much lower than in previous quarters:
      •  EPS revisions for the SPX during calendar Q3 were -1.5%.
      •  Revisions to revenue growth for the SPX during calendar Q3 was -2%.
 
•  I expect the ultimate catalyst for this earnings season will be margins, both current and expected.
 
•  Consensus Expectations for SPX Q3 Revenue Growth (Source: Bloomberg)
      •  Overall -0.6%
      •  Consumer Discretionary  +3.7%
      •  Consumer Staples +3.2%
      •  Energy -17.1%
      •  Financials +0.7%
      •  Health Care +1.2%
      •  Industrials +2.4%
      •  Technology +4.2%
      •  Materials -4.4%
      •  Utilities +10.6%
 
•  Consensus Expectations for SPX Q3 EPS Growth (Source: Bloomberg)
      •  Overall -1.7%
      •  Consumer Discretionary  +1.0%
      •  Consumer Staples -1.0%
      •  Energy -21.9%
      •  Financials +20.0%
      •  Health Care -3.9%
      •  Industrials -0.1%
      •  Technology +2.8%
      •  Materials -22.6%
      •  Utilities -4.2% 
 
Within the sectors, watch the following 10 themes:
 
Favorable Tailwinds
 
   •  Consumer discretionary strength from media and consumer services
   •  Consumer staples strength from food and staples retailers
   •  Health care strength from equipment and services
   •  Financials broad strength found in banks, insurance companies, and real estate
   •  Technology strength found in software, services, and equipment
 
Unfavorable Headwinds
 
   •  Consumer staples weakness from household and personal products
   •  Energy weakness from equipment, services, and fuels
   •  Pharma weakness from life sciences
   •  Industrial weakness from commercial services and supplies
   •  Technology weakness from semiconductors

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.