FTDS - S&P 500 Earnings: Nice Bump In S&P 500 Forward Estimates

2023-12-04 03:29:00 ET

Summary

• The forward 4-quarter estimate jumped this week to $236.41 from last week’s $235.82 and 9/30/23’s $232.95.
• 2024’s S&P 500 EPS estimate is as of Friday, December 1, ’23, $245.75, versus the 2024 estimate as of 9/30/23 of $247.49, and the June 30th estimate for 2024 of $245.39, which shows remarkable stability.
• From an earnings perspective, what’s left of ’23 and calendar 2024 still looks positive, or at least it’s not a negative (yet).

Readers will see a nice bump in forward estimates this week, probably at least partially due to Salesforce ( CRM ), Workday ( WDAY ), CrowdStrike ( CRWD ), and Snowflake ( SNOW ). Those 4 companies grew year-over-year (y.y) revenue by 11%, 16.9%, 35.3%, and 31.8%.

Salesforce and CrowdStrike both rose 16% and 11.5%, respectively.

It was Salesforce that started to break down in late 2021, falling from the $300 area to $125 by December ’22. CrowdStrike as well fell from the $275 area in late ’21 to $100 per share in late ’22, so I look at them as early warning indicators of tech spending sensitivity. Both stocks are still well below that late ’21 high. (No positions in any stock mentioned.)

S&P 500 data:

• The forward 4-quarter estimate ((FFQE)) jumped this week to $236.41 from last week’s $235.82 and 9/30/23’s $232.95.
• The P/E on the forward estimate is 19x vs. 19.3 last week, and 18.4 as of 9/30/23.
• The S&P 500 earnings yield is still pretty low at 5.15% vs. last week’s 5.17% and 9/30/23’s 5.43%.
• The S&P 500 EPS “upside surprise” is still robust at 7.3%, while the S&P 500 revenue “upside surprise” has slid to +0.9%.

S&P 500 EPS rate of change:

This “forward EPS estimate curve” tries to show what the FFQE is for forward quarters and then monitors the “rate of change” for each bucket.

All the forward estimates increased this past week. It’s interesting that as Q3 ’23 S&P 500 “actual” results have been revised higher, Q4 ’23 S&P 500 estimates growth rates have been revised lower. As this blog detailed last week here , Q4 ’22 was not a good quarter for S&P 500 EPS thus Q4 ’22 earnings actually face an easy comparison versus last year, hence the sharp decline in Q4 ’23 S&P 500 EPS expected growth, which has fallen from roughly 10% to 5% since early October, shouldn’t be a big source of market concern.

2024’s S&P 500 EPS estimate is as of Friday, December 1, ’23, $245.75, versus the 2024 estimate as of 9/30/23 of $247.49, and the June 30th estimate for 2024 of $245.39, which shows remarkable stability.

How well did the forward estimate predict 2023’s full-year EPS?

• 12/1/23: $220.79
• 9/30/23: $220.83
• 6/30/23: $219.52
• 3/31/23: $220.25
• 12/31/22: $229.24

Between the end of 2022 and 3/31/23, Silicon Valley Bank ( SIVBQ ) hit, and despite the dire predictions, S&P 500 EPS estimates have been flat ever since, without the calendar year estimate changing at all in the subsequent 9 months of ’23 (at least so far).

For calendar 2024, the current S&P 500 EPS estimate as of 12/1/23 is $245.75, while as of 6/30/23, the same 2024 calendar estimate was $245.39. 2024 S&P 500 EPS is expected to grow 11-12% next year, versus the S&P 500’s 2% expected growth in 2023.

The S&P 500 EPS estimates remain pretty stable. That’s always a positive. Variance creates uncertainty and uncertainty drives selling.

Summary/conclusion:

The companies, particularly the technology companies that reported their October ’23 quarter-end results as of last week, still look healthy. We’ll hear from NIKE ((NKE)), FedEx ( FDX ), and Micron ( MU ). Toll Brothers ( TOL ) reports their October quarter this coming week: most investors would likely say that the biggest surprise in the last 24 months, since interest rate increases became a reality, was the outperformance of the homebuilder segment of the S&P 500. Yes, new home supply has been constrained, but still… (Long NKE, FDX.)

From an earnings perspective, what’s left of ’23 and calendar 2024 still looks positive, or at least it’s not a negative (yet).

All S&P 500 EPS and revenue data is sourced from IBES data by Refinitiv unless otherwise noted. All of this is one opinion, and none of this should be construed as advice or a recommendation. Past performance is no guarantee of future results. Capital markets can change quickly, and this information may not be updated, and if updated, may not be done in a timely fashion. All readers should gauge their own appetite for market volatility and adjust accordingly.

Thanks for reading.

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