Earnings Season

Grab a seat. Earnings season is about to get started. This should be the 15th straight quarter of double-digit earnings growth for the S&P 500. But that’s overall earnings growth. Within industries, the profit growth is very uneven:

S&P expects 53.7% growth in energy firms’ fourth-quarter profits.
Van Dijk looks at the median firm in a sector, instead of on a total earnings basis. He expects technology to show continued strength, while health care “will kind of chug along.”
Health care profits are expected to climb 25.3%, according to S&P, while tech earnings rise 10.8%. Financials are slated to gain 6.3%.
Consumer discretionary profits are expected to grow 6.3% while consumer staples actually fall 5%, says S&P.

Profit Growth.gif
Alcoa (AA) kicked off earnings season for the Dow by giving Wall Street an Eli Manning-style meltdown. The aluminum company earned 26 cents a share, widely missing the Street’s forecast of 37 cents.
I think the critical area to watch will be the financials. The chart above shows that financials are only expected to grow by 6.3%. I’m curious how much the narrowed yield curve has impacted profitability. Analysts have been trimming estimates for stocks like Citigroup (C) and Fifth Third (FITB).
On our Buy List, Golden West (GDW) still looks great. The stock is trading at 13 times earnings, and that’s after a big rally since October. I thought a former Buy List stock, Commerce Bancorp (CBH), was starting to look too pricey.

Posted by on January 10th, 2006 at 6:59 am


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