Earnings and Revenue Growth No Expected to Return Until Q4 For Q2 2015, analysts are predicting year-over-year declines in earnings (-3.9%) and revenues (-4.6%). Analysts do not currently project earnings and revenue growth to return until Q4 2015. In terms of earnings, analysts are currently predicting a decline of 0.3% in Q3 2015, followed by growth of 5.2% in Q4 2015.
In terms of revenue, analysts are currently projecting a decline of 2.5% in Q3 2015, followed by growth of 0.1% in Q4 2015. For all of 2015, analysts are projecting earnings to grow by 1.8%, but revenues to decline by 1.6%. Guidance: Negative EPS Guidance (65%) for Q2 Slightly Below Average At this point in time, 63 companies in the index have issued EPS guidance for Q2 2015. Of these 63 companies, 41 have issued negative EPS guidance and 22 have issued positive EPS guidance. Thus, the percentage of companies issuing negative EPS guidance to date for the second quarter is 65% (41 out of 63). This percentage is slightly below the 5-year average of 69%.
Higher Margins Projected for Remainder of 2015 Analysts are also expecting profit margins to continue to expand in 2015. Using the bottom-up sales-pershare (SPS) and earnings-per-share (EPS) estimates for the S&P 500 as proxies for expected sales and earnings for the index over the next few quarters, profit margin estimates can be calculated by dividing the expected EPS by the expected SPS for each quarter. Using this methodology, the estimated net profit margins for Q2 2015 through Q4 2015 are 10.3%, 10.6%, and 10.6%.
These numbers (starting in are above the net profit margin for Q1 2015 (10.2%), and are also well above the average net profit margin of 9.4% recorded over the past five years. Valuation: Forward P/E Ratio is 16.8, above the 10-Year Average (14.1) The current 12-month forward P/E ratio is 16.8. This P/E ratio is based on Thursday’s closing price (2085.51) and forward 12-month EPS estimate ($124.23). At the sector level, the Energy (30.1) sector has the highest forward 12-month P/E ratio, while the Financials (13.1) and Telecom Services (13.8) sectors have the lowest forward 12-month P/E ratios.
The P/E ratio of 17.1 for the index as a whole is above the prior 5-year average forward 12-month P/E ratio of 13.7, and above the prior 10-year average forward 12-month P/E ratio of 14.1. However, it is equal to the forward 12-month P/E ratio of 16.8 recorded at the start of the second quarter (March 31). Since the start of the second quarter, the price of the index has increased by 0.9%, while the forward 12- month EPS estimate has increased by 0.3%. Nine of the ten sectors have forward 12-month P/E ratios that are above their 10-year averages, led by the Energy (30.1 vs. 12.2) sector. The only sector with a forward 12-month P/E ratio below the 10-year average is the Telecom Services (13.8 vs. 14.8) sector.
