Lower Earnings Guidance Is Running Below Normal

Bloomberg notes that despite that stock slump, lower earnings guidance from companies is running below average:

The number of chief executive officers cutting profit forecasts fell 38 percent below average last month, even as the slowing economy pushed valuations to the lowest level at the start of September since 1985.

A total of 138 companies reduced earnings forecasts in August, compared with the average of 221 for the same month since 2000, according to data compiled by Bloomberg. At the same time, the Standard & Poor’s 500 Index slumped 5.7 percent, pushing its price-earnings ratio to 13.3, the data show.

For bears, the lowest multiples since March 2009 show companies will capitulate and lower their estimates, causing the benchmark index for American equities to fall this month, historically the worst for U.S. stocks, according to Bloomberg data since 1928. Bulls say CEOs are the better gauge and that lower multiples, combined with expectations for 15 percent earnings growth this quarter, will make stocks irresistible.

The article also says that the profits of the S&P 500 have exceeded estimates for 10-straight quarters. The estimate for next year is at $112.32 which is probably too high. Even after that were to come down six or eight dollars, the S&P 500 would still look cheap.

Posted by on September 6th, 2011 at 12:09 am


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