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S&P 500 Earnings Guidance Shows Slight Improvement


First-quarter earnings season was slightly better than expected.

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On Friday, Factset Research Systems (NYSE:FDS) updated its earnings season stats for S&P 500 (INDEXSP:.INX) companies. You can read the full report here.

Here's what we're seeing with 454 companies having reported:
  • Blended earnings growth for Q1 is 2.2%. Telecom services reported the highest growth while financials and energy were the weakest
  • As of March 31, analysts were forecasting a 1.3% decline in aggregate
  • 75% of companies beat earnings estimates, slightly above the four-year average of 73%
  • 54% of companies beat revenue forecasts, which is below the four-year average of 58%
  • In terms of beating earnings and revenue expectations, utilities and energy have been the strongest sectors
  • 88 companies issued Q2 guidance, with 62 of it negative. The 71% negative ratio is actually a slight improvement from recent quarters when it was north of 80%
  • Common areas of concern for companies were domestic weather, foreign exchange rates, and economic conditions in Europe and emerging markets
  • The current forward P/E is 15.2, which is above the 5-year average of 13.2 and the 10-year average of 13.8

In all, from a numbers perspective, we're largely seeing what we saw throughout 2013. The market is mildly stretched in terms of valuation, but expectations remain low enough for companies to jump over.

Low single-digit growth levels aren't particularly exciting, but in the absence of a major economic shock, we're basically squeaking by.

The S&P 500 is up 2.6% year-to-date, which to some extent is probably better than what we could have expected coming in.

In 2013, the S&P rose 30% despite single-digit earnings growth --  so, to some extent, there's a reasonable argument that we could use some time going sideways to allow the economy and earnings to catch up with prices.

Certainly, within the momentum realm, we've already seen a major valuation recalibration through lower prices -- namely the collapses in Biotech (NASDAQ:IBB) and Social Media (NASDAQ:SOCL), as well as in high-profile tech stocks like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN).

However, the fact that guidance is getting slightly better is a good sign as it could mean that corporate confidence is on the upswing.

Whether that eventually translates into real revenue momentum or capex spending growth remains to be seen, but at the very least, it means we're not quite at the point of deterioration in terms of earnings momentum.

Twitter: @MichaelComeau

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