This week, with Q1 ’16 almost entirely reported and companies now reporting their May ’16 quarter end, [Oracle (NYSE:ORCL) reported this past week, Fed-Ex (NYSE:FDX), Nike (NYSE:NKE) and Micron (NASDAQ:MU) will report over the next two weeks, and long all the stock in various quantities for some clients, though positions can change at any time], I thought readers might benefit from an analysis of which S&P 500 sectors are showing positive revisions, not just for Q2 ’16 but for full-year 2016 as well:
Q2 ’16 ThomsonReuters earnings data:
- Energy: -76.8% as of June 17, versus -77% as of April 1 (not much improvement, but still no decline either.)
- Financials: -1.8% as of June 17, versus -2.7% as of April 1 (this surprised me given the drubbing Financial stocks have taken, thanks to credit worries and flat yield curve)
- Industrials: +4.4% as of June 17, versus +0.5% today (significant improvement in last 30 days for the Industrial sector)
Full-year 2016 Thomson Reuters earnings data:
- Consumer Discretionary: +12.4% as of June 17th, vs +11.2% as of April 1
- Consumer Staples: +3.9% as of June 17th, vs +2.9% as of April 1
- Health Care: +8.4% as of June 17th, vs +7.6% as of April 1
- Basic Mat: +1.4% vs -1.8% as of April 1
Thomson Reuters does NOT provide forward revenue estimates, so let’s take a look at Factset data.
Q2 ’16 Factset earnings data:
- Industrials: -2.1% as of June 17th, versus -4.2% as of March 31 ’16.
- Energy: -75.4% as of June 17th, versus -76.2% as of March 31, ’16
Q2 ’16 Factset Revenue data:
- Health Care: +7.7% vs +7.6% as of March 31 ’16.
- Cons Disc: +5.5% vs +5.1% as of March 31 ’16
- Utilities: +4.4% vs +3.1% as of March 31 ’16
- Cons Spls: +2.1% vs +1.9% as of March 31 ’16
Factset full-year 2016 Earnings data:
- Cons Disc: +11.2% as of June 17, vs 10.3% as of March 31 ’16
- Health Care: +7.3% vs +6.5% as of March 31 ’16
- Cons Spls: +3.6% vs +2.6% as of March 31 ’16
- Basic Mat: -1.3% vs -3.7% as of March 31 ’16
Factset full-year 2016 revenue data:
- Health Care: +8.3% vs +8.0% as of March 31 ’16
- Cons Disc: +5.9% vs +5.4% as of March 31 ’16
- Cons Spls: +3% vs +2.9% as of March 31 ’16
- Energy: -18.3% vs -19.8% as of March 31 ’16
- Basic Mat: -2.1% vs -2.1% as of March 31 ’16
- S&P 500: +1.8% vs +1.8% as of March 31 ’16
So what does this all mean?
I’ll have to take some time Saturday and Sunday to dig through some of the individual company data, but note how the Industrial sector shows up in both Thomson’s and Factset’s detail as a sector that has seen upward revisions to earnings growth for Q2 ’16. Could Industrials be a place to hide for the next 4-6 weeks? Possibly. I have to see if 1-2 companies are driving these revisions.
For full-year 2016, note how the same sectors keep showing up with improved revenue and earnings revisions, in terms of expected growth rates. Thomson and Factset are almost identical in terms of the 4 sectors: Consumer Discretionary and Staples, Health Care and Basic Materials, and I would even guess that Energy winds up in the “positive revisions” box in the not-too-distant future.
While Energy and Basic Materials are contingent on the commodity price recovery, Consumer Staples—taking an educated guess, particularly the revenue improvement—is a weaker dollar play.
Health Care continues to be the stalwart it always has been. Given the importance of Biotech to both Health Care and the Russell 2000, the fact that Health Care revisions remain positive, and the Russell 2000 has firmed up above its 200-day moving average, might be the best clues that the 2015 correction in Biotech is over. (Long iShares Nasdaq Biotechnology (NASDAQ:IBB) and sitting at critical support on the weekly chart.)
The Financial sector’s improvement for Q2 ’16 was a surprise. Since it didn’t show up in Factset, I’m assuming that one or two companies are influencing the Thomson data.
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Weekly ThomsonReuters data (by the numbers):
- Forward 4-quarter estimate: $123.24
- P.E ratio: 17(x)
- PEG ratio: 17(x)
- S&P 500 earnings yield: 5.95%
- Year-over-year growth rate of forward estimate: +0.99%
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Conclusion: The Thomson S&P 500 earnings data posted every week won’t change meaningfully until the first week of July ’16, when we get the quarterly bump in the forward earnings estimate, and I’m expecting a $3-$5 increase in the quarterly bump in 2 weeks as higher Energy and Basic Materials estimates lap a weaker 2015 and the weaker dollar helps S&P 500 revenue growth. That being said, I’ve been expecting a faster S&P 500 earnings growth rate for some time, and that conclusion has been wrong.
The year-over-year growth of the S&P 500 forward estimate has continued to bump along at 1%-1.5% for 4-5 months now and it is frustrating. At least the forward growth rate is positive, but that is small consolation.
We’ve had 3 consecutive years where the S&P 500 has generated dollar earnings of roughly $118 per share (note the bottom of this post) and that estimate is starting to work higher.
Finally, the big distraction this coming week will be the Brexit vote on Thursday. The odds still seem to indicate Britain stays in the EU. One interesting note in Bespoke’s weekly report is that this is a “non-binding referendum” and that Members of Parliament—to the tune of 80%—favor Britain staying in the EU, with Bespoke’s point that even if the referendum was to vote “Brexit”, Parliament still has a say.
My question then: is this whole vote for naught?
Brexit and other headlines aside, S&P 500 earnings are poised for improvement.
Continue to play the long game where the S&P 500 is concerned.
Author's Note: Thomson Reuters “This Week in Earnings” and Factset’s “Earnings Insight” are available each week to anyone who wants to have a look at the raw data.