According to a January 23rd report from FactSet Insight, the energy sector of the S&P 500 currently sports the highest forward P/E ratio in over a decade. FactSet Senior Earnings Analyst John Butters notes that analysts remain very positive regarding S&P earnings for 2015, with all sectors projected to see EPS well above their historical norms this year.
S&P 500 forward 12-month P/E ratio
Butters highlights that the current forward 12-month P/E ratio of the S&P 500 is 16.6. This is notably higher than the most recent historical averages: 5-year (13.6), 10-year (14.1), and 15-year (16.1). He also points out that this week is the first time the forward 12-month P/E has been equal to or above 16.6 since March 14, 2005. Of note, on that date, the closing price of the S&P 500 was 1206.83 and the forward 12-month EPS projection was $72.65.
In a possible hint regarding current stock valuations, Butters notes: “Therefore, if analysts were not still projecting record-level earnings over three of the next four quarters (including the downward estimate revisions in the energy sector), the forward 12-month P/E ratio would be even higher than 16.6.”
S&P 500 energy sector forward 12-month P/E ratio
The FactSet report also makes note of the fact the energy sector has seen the greatest decrease in the forward 12-month EPS estimate of all ten sectors during this time frame. Since December 31, the forward 12-month EPS estimate for the energy sector has dropped by 27.3%. Keep in mind that no other sector saw a decline of more than 1.6% in forward 12-month EPS over this time span.
This downdraft in the forward 12-month EPS estimate has led to the forward 12-month P/E ratio for the energy sector swelling to 22.4 today from 16.6 back on December 31. This means the energy sector currently has the highest forward P/E ratio of all sectors in the S&P 500.
Butters also highlights that the current forward 12-month P/E ratio for the energy sector is now well above the three most recent historical averages: 5-year (12.0), 10-year (11.9), and 15-year (13.6). Moreover, this week is the first time the forward 12-month P/E for the energy sector has been equal to or above 22.4 since April 8, 2002. The closing price of the energy sector was 225.15 at that point, and the forward 12-month EPS estimate was $10.05.