Toll Brothers (NYSE:TOL and Costco (NASDAQ:COST will be scrutinized when they report their latest earnings this week. TOL is still expecting 13% y.y growth in EPS, despite the interest rate increases. Costco had a tough day last week after it showed comp’s slowing, but that’s not a bad thing. The stock has been an absolute monster and it seemed to gain share in the pandemic, but now it’s simply returning to normal.
S&P 500 Earnings Data:
- The forward 4-quarter estimate (FFQE) fell slightly to $224.91 from last week’s $224.98 and versus the 9/30/22 FFQE of $230.43.
- The PE ratio as of last Friday, December 2nd, 18.1x versus the 9/30/22 PE of 15.5x
- The SP 500 earnings yield as of Friday night was 5.52% versus the prior week’s 5.59% and 9/30 compare of 6.43%;
Rate-of-change:
Expand the chart and readers will see the EPS erosion has slowed the last 3 weeks, after heavy negative revisions from mid-October through mid-November ’22.
There is such little earnings activity I wouldn’t read too much into it (i.e. the improving rate of change.)
Oracle (NYSE:ORCL), FedEx (NYSE:FDX), and Nike (NYSE:NKE) and a few other big companies will report before Christmas or over the next 20 days, so watch those results.
2023 Expected Quarterly Growth Rates:
This was pointed out last week, but note how the S&P 500 EPS growth rates are thought to trough in Q2 ’23. Ignore ’24 – it’s just too early, but there is softening expected for the next 3 quarters, but it’s not harshly negative.
Annual Sector Growth for 2022 and 2023:
Here’s a table from Refnitiv which allows a longer perspective on sector EPS growth rates.
Both 2022 and 2023 WERE expecting SP 500 EPS growth of 10%, both are now cut in half, with 2023 seeing harsher cuts than 2022.
Summary
S&P 500 EPS growth has been slowing both the present and the expected 2023 growth rates. Other than health care and parts of industrials, like defense, it’s hard to find any clear earnings momentum. Even energy looks a little wobbly, both in it’s trading action and note the energy sectors estimate above in the latest table.
It can always get worse too, but how much of this is already baked into current stock prices and valuations ?
Technology is actually – per the last table – expected to show slightly faster growth in 2023 than 2022, which make sense with the falling dollar, but it’s clearly not the robust earnings and revenue growth of the last 5 years for tech.
It’s almost like the entire Wall Street community has bet on a recession and it hasn’t shown up. ISM non-manufacturing was pretty healthy: remember too “services” are a far bigger part of the US economy than manufacturing. It’s almost an 80% services / 20% manufacturing ratio, today. From one report out of the St. Louis FRED (Federal Reserve Economic Database) “durable manufacturing” which is manufacturing with a very long cycle, like Boeing (NYSE:BA), (and some of the defense companies), Ford (NYSE:F), and General Motors (NYSE:GM), now comprise just 5% of annual GDP growth versus 50% – 55% in the 1960’s.
The slowing in the tech mega-caps and the software names is not a plus: those names always get a lot of media attention.
Take this all with a grain of salt and substantial skepticism. It’s just one opinion and it can change quickly.