Fourth quarter earnings results continue to inch up. With 79% of companies reporting, earnings are coming in nearly 20 percentage points higher than estimates at the start of reporting season.
There was not much change in revenue growth rates, which rose to 8% from 7% and excluding Financials, revenues rose 1 percentage point, to 3%.
Last week saw a fair amount of Q1 preannouncements: 58% of firms guided lower versus 53% of firms issuing negative EPS announcements in Q4. There were also fewer positive EPS announcements — 36% vs 40% in Q4.
2010 S&P 500 Index bottom up earnings estimates are up 2.7% from $76.03 to $78.08. IT earnings estimates are up 9.1%.
At the end of the season, trailing 12 months (2009) eps should be around $57 (current PE of 19.2x) but annualized Q4 earnings will be $69 which is 9.3% higher than annualized Q3 eps. The Q4 annualized PE of 15.9x is quite reasonable under the Rule of 20.
Given positive surprises, upward revisions and reasonable valuations, this market has good upward potential towards 1240 if inflation is held below 2.0%.
Analysts continue to expect a strong Q1 earnings season, penciling in 37% growth (led by Financials and Consumer Discretionary). In fact, analysts forecast earnings to remain around 20% for the remainder of the year.
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