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Earnings Season Begins

01/07/2013
This Tuesday, January 8, earnings results from the calendar fourth quarter of 2012 will begin to be reported. For the S&P 500® Index (SPX), it is a light week ahead with only five companies reporting.
 
Tuesday, January 8
•  Monsanto Co. (MON) consensus EPS estimate of $0.36
•  Alcoa Inc. (AA) consensus EPS estimate of $0.06
•  Apollo Group (APOL) consensus EPS estimate of $0.90
 
Wednesday, January 9
•  Constellation Brands Inc. (STZ) consensus EPS estimate of $0.55
 
Friday, January 11
•  Wells Fargo (WFC) consensus EPS estimate of $0.90
 
The following week, multiple financial sector heavyweights such as JPM, USB, GS, CMA, NTRS, STI, BBT, C, BAC, STT, MS, PNC, and AXP will report. That week of January 14 will be very important in terms of setting a tone for the coming earnings season. Consensus estimates for EPS growth are highest for the financial sector, currently at +28%.
 
The following week, January 21, technology takes center stage highlighted by Wednesday, January 23’s post market Apple (AAPL) report. AAPL previously guided to $11.75 EPS; consensus estimates, which had fallen over the past six weeks, are currently for $13.35 EPS. Technology sector EPS growth is estimated at +12%, with sales growth estimates of +6%.
 
Overall, SPX consensus estimates for EPS growth is +9% and sales growth of +2%. That is better than last quarter’s 1.13% EPS growth and +0.14% sales growth.
 
The materials sector seems poised for a sharp recovery, with estimates for EPS growth at +19% and sales growth at +10%. Last quarter, materials EPS growth was -26.86% and sales growth was -6.48%.
 
Consumer discretionary should once again enjoy positive EPS and sales growth. Estimates for EPS growth are for +11% and sales growth of +7%.
 
Not much is expected from the energy sector, which last quarter disappointed with EPS growth of -21.07% and sales growth of -14.61%. For the upcoming quarter, EPS growth estimates are -2% and sales growth estimates of -1%. Industrials should also experience both negative EPS and sales growth for the upcoming quarter at -1% and -2%, respectively.
 
Consumer staples last quarter posted EPS growth of +1.18% and sales growth of +2.74%. Given the sector’s rich P/E valuation of 15.7, the consensus estimate for the upcoming quarter of +2% EPS growth and unchanged sales growth might not be enough to suggest sector outperformance relative to the SPX itself. 
 
SPX Valuations
•  The SPX currently is trading at 13.21 times 2013 earnings estimates and 14.85 times current earnings of $98.75•  The current dividend yield is 2.18% and free cash flow yield is 7.06%. 
•  The current profit margin is 13.44%.
•  Overall market cap is $13.5 trillion as compared to 2012’s $13.1 trillion, 2011’s $11.8 trillion, 2010’s $11.6 trillion, 2009’s $10.2 trillion, and the unbelievable $8.1 trillion during 2008.

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.