Forward earnings for the S&P 500 rose to $117.09 per share during the week of June 20. It’s up from $112.99 at the end of last year. My target has been $118 for the end of this year. Industry analysts are currently estimating $123.65 for 2014. If that estimate doesn’t fall over the rest of the year, that will be the S&P 500’s forward earnings at the end of the year. I’ve been bullish on earnings, but not that bullish.
On the other hand, the four-quarter sum of the S&P 500’s net operating income has been flat over the past year through Q1-2013 around $900 billion. In the GDP accounts, cash-flow profits have also flattened over the past year around $1.5 trillion. Total corporate cash flow has done the same, around $2.0 trillion. However, both are at record highs.
When industry analysts listen to the earnings conference calls of the companies they follow, they’ve recently been hearing that revenues are slowing. They’ve also been hearing that managements plan to continue using excess cash flow to buy back shares and increase dividend payouts. When they put the specific numbers into their spread sheets, they get higher earnings per share as a result.
I track the divisors used by S&P to ensure that changes in shares outstanding, capital actions, and the addition or deletion of stocks to the index do not change the level of the index. They are rough proxies for the count of outstanding shares. Over the past 52 weeks through June 21, the divisors for the S&P 500, S&P 400, and S&P 600 are down 1.1%, 4.3%, and 2.3%, respectively. I suspect that corporations may not be buying back as many shares as they claim, and as analysts model in their spreadsheets.
In any event, although corporate cash flow has flattened along with corporate profits, it’s done so at a record high. There is plenty of it to drive stock prices higher. For the S&P 500, the sum of buybacks and dividends totaled $702 billion over the past four quarters through Q1-2013. Since the start of the bull market during Q1-2009, the sum total is a staggering $2.3 trillion.
Today's Morning Briefing: The Threepenny Opera. (1) A cast of 19 in the Fed’s opera. (2) They love to sing. (3) Writing the script during the live performance. (4) Dudley and Fisher agree on something. (5) Searching for a clear message. (6) Rising noise-to-signal ratio tends to depress P/Es. (7) Remarkably strong signal in forward earnings. (8) Shares are down for the count, so earnings are up per share. (9) Divisors as proxies. (10) Corporate cash flow still driving the bull. (More for subscribers.)
On the other hand, the four-quarter sum of the S&P 500’s net operating income has been flat over the past year through Q1-2013 around $900 billion. In the GDP accounts, cash-flow profits have also flattened over the past year around $1.5 trillion. Total corporate cash flow has done the same, around $2.0 trillion. However, both are at record highs.
When industry analysts listen to the earnings conference calls of the companies they follow, they’ve recently been hearing that revenues are slowing. They’ve also been hearing that managements plan to continue using excess cash flow to buy back shares and increase dividend payouts. When they put the specific numbers into their spread sheets, they get higher earnings per share as a result.
I track the divisors used by S&P to ensure that changes in shares outstanding, capital actions, and the addition or deletion of stocks to the index do not change the level of the index. They are rough proxies for the count of outstanding shares. Over the past 52 weeks through June 21, the divisors for the S&P 500, S&P 400, and S&P 600 are down 1.1%, 4.3%, and 2.3%, respectively. I suspect that corporations may not be buying back as many shares as they claim, and as analysts model in their spreadsheets.
In any event, although corporate cash flow has flattened along with corporate profits, it’s done so at a record high. There is plenty of it to drive stock prices higher. For the S&P 500, the sum of buybacks and dividends totaled $702 billion over the past four quarters through Q1-2013. Since the start of the bull market during Q1-2009, the sum total is a staggering $2.3 trillion.
Today's Morning Briefing: The Threepenny Opera. (1) A cast of 19 in the Fed’s opera. (2) They love to sing. (3) Writing the script during the live performance. (4) Dudley and Fisher agree on something. (5) Searching for a clear message. (6) Rising noise-to-signal ratio tends to depress P/Es. (7) Remarkably strong signal in forward earnings. (8) Shares are down for the count, so earnings are up per share. (9) Divisors as proxies. (10) Corporate cash flow still driving the bull. (More for subscribers.)
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