As of yesterday, half of the S&P 500 has has reported second quarter earnings (251 out of 500), and are 3.5% ahead of estimates with 36% coming in above and 11% below. Energy remains the laggard with 41% reporting earnings below expectations (albeit 4.6% above 1Q13 on lower revenues). The Financial Sector leads with good results from J.P. Morgan, Wells and Bank of America, and a large portion of the earnings beat is coming from that sector.
Guidance still points downward however According to Morgan Stanley, the ratio of negative-to-positive guidance is 2.4x for the third quarter of 2013 as companies continue to pare back expectations, and negative 2013 guidance has driven analyst estimates modestly lower. Over the past month, analysts have revised down their 2013 and 2014 S&P 500 estimates 0.3% and 0.7%, respectively.
The S&P’s expected earnings (which have modestly come down since the beginning of the year) call for aggregate earnings of $110.75 for 2013 and $122.87 for 2014. Materials and Energy companies have lead the revisions down in the last month, offset by upward revisions in Discretionary, Financials and some Telecom.
Consensus earnings growth is outpacing revenue growth by a factor of greater than 2:1.
Morgan Stanley also notes that excluding energy, financials, Apple and GM, incremental margins are expected to expand to 13.4% in 2013 and to 19.6% in 2014 after contracting to 3.0% in 2012.
Based on those estimates, the Index trades at 15.2x 2013, and 13.7x 2014 earnings. Energy is one of the cheapest values in the S&P at 12.0x 2013 earnings (and 5.7x EV/EBITDA). The Consumer Discretionary group (autos, durables, media, retail) is the richest using it’s 19.2x P/E, but second to Consumer Staples at almost 9x EBITDA, and 4.1x P/BV. Staples 2013 P/E is 17.5x, but a 9.6x EV/EBITDA and 4.5x P/BV (albeit with the highest ROE at 24%).