Q4 earnings in perspective

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With most of the S&P 500 companies having reported financial results for Q4 2009, the chart below, courtesy of The Chart Store (via The Big Picture), shows how S&P 500 earnings declined by 92% from their Q3 2007 peak to the low of Q1 last year, and then subsequently rebounded by more than 600%. However, as shown by various measures of historical and prospective price/earnings multiples (see text in blue), the S&P 500 is not in cheap territory. Justifying current price levels will require stronger earnings growth than currently estimated by Standard & Poor’s.

Click the image below for a larger graph.


Source: The Chart Store (via The Big Picture), February 22, 2010.

Still on the earnings front, Bespoke highlights the final earnings and revenue beat rate for all US companies that reported this earnings season. “For the third quarter in a row, 68% of companies beat earnings estimates. The revenue beat rate was really strong this quarter at 70% – the highest reading since Q4 ’04. Does this put the ‘strong bottom line, but weak top line’ bearish argument to rest?” argued the report. Although these are good readings, more work is necessary to take stock prices higher without stretching valuations even more.


Source: Bespoke, February 19, 2010.

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