Margins For S&P 500 Flat At Peak Levels: Goldman Sachs

S&P 500 margin

Dissecting 1Q 2014 results of S&P 500 (INDEXSP:.INX) companies, Goldman Sachs analysts anticipate earnings and sales would grow while margins would remain steady at peak levels.

Amanda Sneider and team at Goldman Sachs in their report dated May 2, 2014 point out Utilities firms beat expectations thanks to higher electricity volumes / power prices driven by abnormal weather. The analysts report has been published after results of 375 companies have been announced, representing 80% of equity cap in S&P 500.

S&P 500: Margins flat at peak levels

The Goldman Sachs analysts point out that trailing four-quarter margins equal 8.8% for 1Q 2014 and have been largely unchanged for three years. The following graph highlights that for the past three years, trailing four-quarter margins have remained essentially flat, ranging from 8.4% to 8.9%:

The analysts forecast margins will equal 8.9% for full-year 2014, unchanged versus 2013.

Dwelling further for sector view, the analysts point out trailing four-quarter margins for Telecom Services and Industrials expanded versus 4Q 2013, while Energy, Consumer Discretionary, Materials and Health Care margins declined. Flat margins were witnessed in Information Technology and Consumer Staples. The following table highlights most of the sectors posting sequential margin decline:

Sectors - Decline in margins S&P 500

Unchanged EPS

The Goldman Sachs analysts note S&P 500 (INDEXSP:.INX) 1Q 2014 operating EPS at $26.86%, showing 4% growth against 1Q 2013. This is can be evidenced from the following graph:

EPS estimates by quarter S&P 500

The analysts anticipate full-year forecast of $116, implying downside to consensus earnings estimates through the remainder of the year:

Consensus S&P 500 2014 EPS S&P 500

Taking a sectoral view on EPS projections, the analysts point out that revisions to the remainder of 2014 EPS have been most negative in Utilities and Consumer Discretionary, while it is positive for Health Care.

However, Energy revenue estimates for the next three quarters fell 2% during April. The following table sets forth the bottom-up consensus revisions to 2Q to 4Q 2014 earnings, sales and margins:

EPS-Sectoral view S&P 500

The following table presents a sector-wise view on S&P 500 (INDEXSP:.INX) 1Q 2014 in terms of earnings, sales and margins. As can be deduced from the following table, Information Technology sales and earnings dropped 2% versus last year.

S&P 500 1Q 2014 by sector S&P 500

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About the Author

Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports

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