Thursday, January 5, 2012

S&P 500 Revenues & Profit Margin

Yesterday, I noted that industry analysts have been lowering their earnings estimates for Q4-2011 since last summer. I attributed their downbeat reassessments to mounting concerns that Europe is falling into a recession. They must believe that it won’t be a long-lasting depression because they are already raising their 2013 estimates for revenues. They started doing so late during 2011 and ended the year with an estimate of $1,143 per share for S&P 500 revenues, up 5.2% from their 2012 estimate, which also edged up at the end of last year after dropping during the summer. This year’s revenues are expected to be up 3.6% over last year’s sales.

Offsetting analysts’ concerns about weaker growth overseas, particularly in Europe, is better than expected growth in the US in recent months. They must expect it to continue. That’s evident in the revenues data that I monitor every week for the 10 sectors of the S&P 500. What I see is solid upward trends in 2012 revenue estimates for Consumer Discretionary, Consumer Staples, Health Care, Information Technology, and Telecom Services. Flattening or declining 2012 revenues expectations are visible among the following more globally exposed sectors: Energy, Financials, Industrials, and Materials. Looking out to 2013, the only one of the 10 sectors that’s been showing falling revenues estimates in recent weeks is Materials.

While the analysts’ outlook for revenues is looking up, they have been consistently reducing their consensus expectations for the profit margins of the overall S&P 500 as well as most of its sectors for both 2012 and 2013. I calculate these margins from the data compiled by Thomson Reuters on consensus forward earnings and forward revenues. So the 2012 estimate for the S&P 500 fell to 9.7% at the end of last year, the lowest since I started to track the data in September 2010. The 2013 estimate fell to 10.5% at the end of last year, the lowest for this series, which I’ve been monitoring since September of 2011. (More for subscribers.)

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