The fourth quarter 2014 earnings season is well under way, with 323 of the S&P 500 having reported earnings as of Friday February 6th. In a FactSet Earnings Insight report, VP and Senior Earnings Analyst John Butters provides an earnings overview, noting that an impressive 78% of firms have reported earnings above the mean estimate and a solid 59% have reported sales above the mean estimate.
As a group, firms in the S&P 500 are beating consensus earnings estimates by 4%.
Fourth quarter 2014 S&P 500 earnings overview and fast facts
Given these positive earnings surprises, the blended (combination of actual results for companies that have reported and estimated results for companies not yet reported) earnings growth rate for fourth quarter 2014 has reached 3.0%. This is well above the estimate of 1.7% at the end of the fourth quarter. The Health Care and Telecom Services sectors are reporting the highest annual growth in earnings, and not surprisingly, the Energy sector is reporting the largest annual declines.
Relating to upside revenue surprises, the blended revenue growth rate for fourth quarter 2014 is 1.6%, which is above the estimate of 1.1% at the end of the fourth quarter. As with earnings, the Health Care sector is reporting the highest annual growth in revenue, while the Energy sector is reporting the largest annual declines.
Butters notes that the markets will be looking for “comments from companies regarding the impact of lower oil and gas prices, and also the impact of improving economic conditions in the U.S. (and the stronger U.S. dollar) compared to slowing economic conditions in Europe and Asia.”
He also suggests that investors will be very tuned into corporate guidance for the current quarter. To date, in the first quarter of 2015, 52 S&P 500 companies have produced negative earnings guidance and 10 have produced positive earnings guidance. The percentage of companies producing negative earnings guidance for the first quarter of 2015 is 84% (52 out of 62), which is above the 5-year average of 68%.
Finally, Butters also points out that the current 12-month forward P/E ratio of the S&P 500 is 16.9. This reading is much higher than both the 5-year average of 13.6 and the 10-year average of 14.1.