S&P DJ Indices, which operates independently of S&P Capital IQ, recently issued a very encouraging summary of the S&P 500’s second-quarter earnings accomplishments that included:
- New quarterly Operating and As Reported EPS records
- New quarterly Operating and As Reported margin records
- A New quarterly sales record, and
- A New quarterly dividend record
In addition, they stated that Q3,’14’s results are expected to break each of these six records.
Even more encouraging is that Wall Street is in agreement. As of Friday, October 3, Capital IQ consensus estimates of Q3 S&P 500 operating EPS are projected to have advanced 6.3%, accompanied by year-over-year EPS increases for all 10 sectors, led by Materials (+14.1%), Telecom Services (+12.0%), and Health Care (+11.1%). The groups expected to show the smallest gains include Consumer Staples (+2.8%), Utilities (+3.1%) and Information Technology (+3.7%). At first glance, one might think that Q3 EPS estimates anticipate a sequential decline in results. Three months ago, when Q2 results were getting ready to be announced, the anticipated growth was similar. True to history, however, in which actuals have exceeded estimates by two to four percentage points, so too could Q3 actuals come in higher than current expectations.
Revenue growth in Q3 is also expected to rise 5.0%, as it did in Q2. The greatest year-over-year gains are projected to come from the Health Care (+8.4%), Info. Tech. (+7.4%) and Industrials (+6.7%) sectors, while the Materials (-0.8%) and Telecommunications Services (-6.1%) groups are likely to post declines.
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Which will be the driving forces behind Q3’s results? My Sector Watch, dated 10/6/14 and found in the “Sectors” tab of MarketScope Advisor (sign up for a free 14-day trial at www.getmarketscope.com) highlights what S&P Capital IQ equity research analysts see as to the factors that likely affected EPS growth in Q3. In particular, the price of WTI oil averaged nearly $10 less in Q3 ‘14 than in Q3 ’13, whereas the value of the U.S. dollar index averaged 2.6% more this quarter than in the year-ago quarter. In addition, U.S. GDP is projected to have risen 3.9% in Q3, on strengthening capital spending, residential construction, and job growth, plus favorable interest rates.
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