A December 5th report from FactSet Earnings Insight points points out that major public company earnings estimates have slipped significantly in all sectors from September 30th, and highlights that earnings estimates in the energy sector are down by more than 20%. The report was authored by FactSet Senior Earnings Analyst John Butters.
S&P 500 key metrics
Earnings Growth: The FactSet report notes that the estimated earnings growth rate for for the S&P in the fourth quarter is 3.4%. According to analysts consensus, the telecom Services sector is expected to report the highest earnings growth for the period, while the energy sector is anticipated to report the largest decline in earnings for the period.
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Earnings Revisions: As of September 30th, the estimated earnings growth rate for the fourth quarter was 8.3%. Of note, earnings estimate growth rates are down in nine out of 10 sectors because of negative revisions to earnings estimates, with the energy sector leading the way.
Earnings Guidance: 77 companies have given negative EPS guidance and 19 companies have given positive EPS guidance to date.
Valuation: The FactSet Earnings Insight report also highlights the current 12-month forward P/E ratio is 16.2. This P/E is based on last Thursday’s closing price of 2071.92 and a forward 12-month EPS estimate of $128.27.
Earnings Scorecard: Of interest, among the 499 companies that have reported earnings for the third quarter, 77% have produced earnings above the mean estimate and 59% have reported sales beating the mean estimate.
Energy sector earnings estimates fall off a cliff with lower oil prices
The major slump in the price of crude oil during the fourth quarter (to $66.81 on December 4th from $91.16 on September 30) has led analysts to lower earnings estimates for firms in the energy sector in the S&P 500 for the fourth quarter. The fourth quarter bottom-up EPS estimate has decreased by 20.5% (from $11.94 to $9.49) since September 30th.
Over the last year, the average decrease in the bottom-up EPS estimate for the energy sector has been 4.3% per quarter. For perspective, over the last five years, the average decline in the bottom-up EPS estimate for the energy sector for a quarter has been -0.1%. Over the last ten years, the average increase in the bottom-up EPS estimate for the energy sector for the quarter has been 0.7%.
That means the decrease in the bottom-up EPS estimate for the energy sector to date is already higher than the 1-year, 5-year, and 10-year averages for an entire quarter. The FactSet report highlights that if the final decline in the consensus estimate is 20.5%, this will represent the biggest decrease in the EPS estimate for the energy sector during a quarter since the first quarter of 2009.