Earnings Season – So Far, So Good
by Craig on 04/02/10 at 10:32 am
Yesterday the S&P 500 earnings season passed the halfway mark and there are now 274 index member companies that have reported and the results have been good. So far 77% have exceeded analyst expectations with strong positive surprise rates in the Consumer Discretionary, Health Care and Information Technology sectors. Also impressive is the average earnings growth is showing 47% growth, ending eight consecutive quarters of negative earnings growth. Digging deeper, sales are coming in above expectations as well with a surprise rate of 71% (2nd Chart on right). And 58% of those that have reported are enjoying higher sales than Q4 last year.
In Canada, the earnings season is just getting started with 23 companies in the TSX having reported. So far the positive earnings beat rate it 64%, so not great but still very early to start drawing any conclusions.
A solid earnings season would go a long way to help the valuations of the current markets. Perfectly normal coming out of a recession, the market rallies ahead of earnings or a more material rebound in the economy. After all the market is a proxy for the future. But with the recent weakness in the market and the return of earnings growth, the higher than average P/E ratio for the S&P 500 is coming down. The red line uses trailing 12-months of earnings while the blue line is based on current year consensus analyst expectations.
