The Forward Earnings Outlook with Brian Gilmartin

Josh here, today I want to introduce you to Brian Gilmartin, the founder and portfolio manager at Trinity Asset Management based in Chicago. Brian’s been managing portfolios since 1995 and does a really great weekly summation of The Street’s forward earnings expectations on his blog Fundamentalis.

Forward earnings expectations are very important for all traders and investors to be aware of. They tell us a lot about how analysts view the profit outlooks of their coverage universe and, as such, they speak directly to overall sentiment, both on Wall Street and among the corporate executives who provide the guidance. 

This is Brian’s first contribution to TRB and we hope this will become a regular feature on the site. Enjoy!


The forward 4-quarter EPS estimate for the SP 500 fell $0.03 this week to $115.86, from last week’s $115.89.

The p.e ratio on the forward estimate is 14.3(x), which is closer to the high-end of the p.e range for the SP 500 over the last year. Using the forward estimate, over the last 18 months, the SP 500′s forward p.e ratio has ranged from 12(x) to almost 15(x) earnings for what has been slow and steady mid-single-digit growth for SP 500 earnings, both in 2012, and what is estimated for 2013 and 2014.

The earnings yield on the SP 500 forward estimate is 6.96%.

The growth rate in the forward estimate rose again to 7.28%, versus last week’s 7.24% and July 5th’s 5.16%.

With 485 companies reporting their 2nd quarter, 2013 results, actual year-over-year (y/y) earnings and revenue growth for the SP 500 was +4.8% and +2.1%.

The biggest Q2 ’13 upside surprise in terms of sector expectations was Financials, which is showing +30% y/y growth when 17.5% was projected in July 1. Also showing healthy upside surprises were Consumer Discretionary, at +9.1% actual growth versus the +5.9% expected on July 1, and HealthCare at +4.7% when 0% growth was expected July 1, ’13.

Energy and Basic Materials are the two sectors that disappointed in terms of q2 ’13 , and despite the headlines, it was Energy that was far worse than  Basic Mat: On July 1, consensus expectations were expecting +1.3% earnings growth for the Energy sector, while actual growth is -8.3%. For Basic Materials, on July 1, expectations were for a -6.7% decline, while the actual results show a -8.3% y/y drop in q2 ’13 earnings, with the point being that I suspect Basic Materials as a sector was already discounting horrid news by the time companies reported. This may be one reason that Basic Mat stocks have been flatlining since late June – early July, despite horrid earnings and guidance.

Personally, in terms of the SP 500 as a whole, I thought Q2 ’13 would wind up close to +6% y/y growth, better than today’s 4.8%.

In terms of the horrid retail numbers the last two weeks, and what that could portend for the economy and SP 500 earnings, note that since August 1, or the start of retail reporting season (usually February, May, August and November is when retailers report their results) the actual forward estimate for the SP 500 has fallen from $115.96 on August 2nd, to $115.86 as of August 23rd, or a whopping $0.10 slippage. (Yes, one thin dime…)

For full-year 2013 and 2014, SP 500 earnings are still expected to grow 6.5% and 11.3% respectively.

Brian Gilmartin, CFA, is the founder and portfolio manager at Trinity Asset Management, Inc. Brian’s been managing money for high net worth individuals, and foundations since 1995. Trinity uses a bottom-up, top-down approach for client portfolios.



Follow Brian on Twitter @TrinityAssetMan

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