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S&P 500 Earnings Estimates - Forget About 2009, There’s No Consensus for 2008

Posted on | December 2, 2008 Time: 10:53 am |

The Ticker Sense blog had a nice post up the other day discussing the earnings potential of the S&P 500 for 2008. Below (hat tip to Birinyi Associates) shows the current estimate consensus for 2008 vs. where it stood 3 months ago. We’ve had an $11 reduction in estimates in the past quarter, with over 70% of that coming from the financial sector:


How Does One Read This Map?

Analysts are faced with several important tasks, each being quite consuming in its own right. First is trying to determine just how much carnage was truly caused in the financial sector this year. It’s not out of the realm of possibility to see a $0 net contribution to S&P earnings from the financial sector in 2008.

The write-downs and operating losses have been so severe that one has to wonder what 2009 S&P estimates should look like in comparison. We will certainly see lower earnings in 2009 within technology, consumer goods, energy and industrials. Utilities, healthcare, and telecom will be moderately lower, but could turn in slight EPS gains. Financials will certainly improve, if only because the majority of write-downs have already been taken in the most toxic securitized products.

2009 Musings

Is it crazy to think that the S&P 500 could generate - in relation to the low end of current estimates ($63.27) - flat earnings in 2009? Before you answer, consider that financial firms have taken write-downs of over $600 billion already this year. That’s $600 billion in lost earnings in 2009 that must be realized before the S&P 500 would start to head lower at the margin. We are currently throwing more money down a rabbit hole than has ever been attempted, certainly in nominal but also in real terms. While is has yet to “stick” so far, once it does there will be another wall of money behind it, and the upward price pressure should remain for quite some time.

While so many parameters are in obvious flux, I’m not uncomfortable with a $60.00 estimate on 2009 EPS, barring another batch of major deflation in financial assets. That puts a forward multiple of about 14x on the S&P, well below historical trough levels.

Ryan Barnes

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