Regular visitors to dshort.com know I follow Howard Silverblatt’s earnings spreadsheet on the Standard & Poor’s website. Free registration is required to access this data. I’ve received several requests for more specific details on where to find the spreadsheet. It is fairly well hidden. Here are two links to help frustrated seekers: step one and step two.
I follow the “As-Reported” earnings and top-down estimates for future earnings (see column D in the spreadsheet). The chart below shows the higher estimates of future earnings from the most recent spreadsheet, dated October 19th and four earlier spreadsheets (August 24th, February 17th, April 28th, and July 15th).
The latest earnings estimate for 3Q 2010 is 70.17. Yesterday’s close gives us a P/E ratio of 16.82, which is about 9% above the average trailing 12-month P/E of 15.48. Beyond the 3Q, the chart illustrates increasing optimism about next year’s earnings. The October 19th estimate of $85.31 for 4Q 2011 at today’s P/E of 16.82 would put the S&P 500 at 1,435 at the end of 2011. That’s a gain of 21.6% from the latest close.
But will as-reported earnings really live up to these estimates? A couple of months ago Howard Silverblatt pinpointed the problem for earnings in a Bloomberg article No Sales Means No Jobs Means No Recovery. His concluding remarks are worth repeating here:
I look to sales as a future indicator. On this basis, earnings are running ahead of Q1 2010, but sales are flat, and that’s the problem. It’s great that companies have improving earnings, but those improvements are due to high margins, which were the product of cost cuts — specifically job reductions, the very thing that we need to improve now. Until companies and consumers start to spend more, the job front will not get better, but they won’t spend more until they believe things are getting better. The stimulus programs were supposed to jump start the economy and break the downward cycle by convincing both groups that better times were here. But so far we’re not seeing the sales or the jobs; but earnings are good, at least for now.
Companies in the S&P 500 sell across the world. But consumption in the US, which remains critical for sustained earnings growth, has been undergoing a sustained contraction — a fact that every new update of the Consumer Metrics Institute’s Growth Index dramatically illustrates.
Will that $85.31 4Q 2011 earnings number materialise? I remain sceptical.