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Article / 13 November 2012 at 6:31 GMT

S&P500: Analysts keep trimming growth expectations for 2012, 2013

Peter Bo Kiaer Peter Bo Kiaer
Strategist & Equity Analyst / Private
Denmark

Executive summary

  • 2012 EPS growth expectation is now 6.5%, from 6.9% at season's start
  • 2013 expected growth trimmed to 10%, from 11.4% at season's start
  • Finance has lost some of its shine, while materials continue decline
  • US Fiscal Cliff overshadowing 2013, along with Europe debt situation

 

The S&P earnings season is beginning to wrap up.  From the annual earnings expectations in table 1, we see that expectations for 2012 earnings growth have now declined to 6.5%, from the 6.9% at the beginning of the season. This has once again rubbed off on 2013, where growth expectations are now standing at 10% versus 11.4% at the beginning of the season.

S&P500 expected earnings

This is a mix of revenues surprising on the low side of expectations and an earnings beat of only 1%.  Finally we have had negative guidance continuing into Q4 and this paves the way for analysts to bring down their estimates.

As mentioned last week, the yearly numbers mask the changing tides, as Q3 EPS has been revised up even though it has been a weak season. But analysts have not changed their the overall perception. Q3 EPS has been lifted by 64 cents (USD 2.55) while Q4 has chipped away these gains and then some, leaving Q4 expectations USD 1.05 lower (-3.9%), see table 2 and chart 1. This leaves 2012 EPS down net 39 (-0.4%) cents since the earnings season began, see table 1.

 S&P500 Quarterly expected earnings

Looking at bit further into Q1-2013, the increasing risks in the horizon are taking a the toll on the EPS numbers. The US Fiscal Cliff has probably something to do with the downgrades, as do the continuing fiscal troubles in Europe. And the fact that companies are continuing to issue negative guidance must give analysts reason to become more cautious, see chart 1.

S&P Quarterly Consensus Earnings development

 

Sector movements
Materials have managed to decline even more in Q3 than in previous quarters: they have dropped a total of 3.9% since this earnings season began. Financials have not been able to maintain their good start, with revisions trimming their gains from 1.5% to 0.9%, see also chart 3. Telecom and Energy have had minor positive revisions, and have net had a lift of 2% and 1% respectively.

S&P500 Sector Q3-12 earnings

Industrials had a bounce in expectations after a long streak of negative development, but the momentum died, and EPS expectations have declined a bit towards the end of the season.

S&P500 Industrials 2012 earnings expectations

Over the summer analysts had rising expectations for the financial sector, and good results at the beginning of the season repaid that faith. But the overall sector let them down, and expectations have been brought back a bit towards then end of season.

S&P500 Financials 2012 earnings expectations

Conclusion
Analysts have not become newly positive on the economy and the state of companies. Yes Q3 has had a good run, but its gains and more have been trimmed from the expectations for Q4. EPS expectations for 2013 are suffering as well, so we need more evidence that, for example, the US Fiscal Cliff will be properly taken care of. Europe is not out of the woods yet, and company guidance is still very weak.

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