Very Few Changes - Earnings Trends

Key Points:

• Second quarter earnings season shaping up as a very strong one. So far, 99.2% of S&P 500 firms have reported (496). Surprise ratio 4.20 with a 6.06% median surprise. 73.6% of all firms beat expectations. Total net income has grown 36.9%.
• Sales Surprise ratio at 1.59, median surprise 0.97%; 57.9% of all firms do better than expected on top line. Total revenue growth 10.7%.
• Reported earnings growth among the reported down from to the 47.6% those firms reported in first quarter, slowdown to 18.3% growth expected for third quarter. Revenue growth slightly lower than 12.4% first quarter level. Revenue slowdown to 4.1% growth expected for third quarter.
• Total earnings for the S&P 500 expected to jump 41.4% in 2010, 15.3% further in 2011.
• Autos, Finance, Basic Materials and Energy expected to be earnings growth leaders in 2010. Construction expected to move from the red to the black. No sector expected to see earnings decline in 2010.
• Total revenues for the S&P 500 expected to rise 4.6% in 2010, 6.1% in 2011.
• Given 12.4% revenue growth in first quarter, and 10.7% and 4.2% expectations for second quarter and third quarters, this implies slowdown in the fourth quarter (or increases in full-year estimates).
• Huge net margin expansion expected to continue in 2010 and 2011.
• Revisions ratio for full S&P 500 at 1.39 for 2010, at 1.08 for 2011, a substantial deterioration from last week. Change driven by old estimates falling out more than new estimates being made. Ratio of firms with rising to falling mean estimates at 1.31 for 2010, 1.08 for 2011.
• S&P 500 firms earned a total of $546.8 billion in 2009, expected to earn $773.2 billion in 2010, $895.1 billion in 2011.
• S&P 500 earned $57.68 in 2009, $81.35 in 2010 and $93.97 in 2011 expected bottom up. Puts P/E’s at 18.9x for 2009, 13.4x for 2010, and 11.6x for 2011.
• Top Down estimates: $79.50 for 2010, $90.89 for 2011.

The second quarter earnings season was a very strong one. A total of 496 (99.2%) of the S&P 500 firms have already reported. The median surprise so far is 6.06% and there have been 365 positive EPS surprises and only 87 disappointments (surprise ratio of 4.20). As for growth, the total net income of those 496 firms is 36.9% higher than it was a year ago. For those firms, that is down from the 47.6% growth they posted in the first quarter. 

As far as the top line is concerned, the story is also upbeat. Positive surprises lead disappointments by 287 to 181, or a surprise ratio of 1.59 and a median surprise of 0.97%. Total revenue is 10.7% higher, down from the 12.4% growth those same firms saw in the first quarter.

However, there seems to be an asymmetrical response in the market. Firms are not being rewarded if they post a positive surprise, but are punished severely if they disappoint, particularly if they disappoint on the top line. This has made it seem like revenues are not doing as well as they are. Keep in mind that firms in the S&P 500 get a substantial portion of their revenues from abroad, either through overseas operations or exports, so revenue growth is not entirely tied to domestic nominal GDP growth.

Third Quarter Expectations

Looking ahead to the third quarter, the comparisons continue to get tougher, and growth is expected to drop to 17.9%. For an economic recovery that seems to be very sluggish and lethargic, that is still very impressive. With 9.6% unemployment and very sluggish growth in median real wages, there are lots of reasons for the average American to complain. But for the business community to complain they show themselves to be nothing but a bunch of spoiled crybabies. However, those stagnant real wages are also the main source of consumer spending, and it they remain stagnant indefinitely, the sustainability of earnings growth has to be in question. We do not seem to have reached that point yet, however.

For the full year, earnings are expected to grow 41.4% in 2010, with further growth of 15.3% in 2011. Next year we should once again set a new all-time record high for S&P 500 earnings. That will be long before employment returns to record levels. These results refer to the S&P 500, which are almost by definition "big businesses," many of which get a majority of their earnings from overseas. With interest rates low, they are able to float bonds at very attractive interest rates.

Small businesses have not been faring as well, and have had a hard time getting access to capital. An effort to aid small businesses through a package of loans and tax cuts was recently blocked by a filibuster in the Senate, even though many of the Senators that voted to prevent a final vote on the bill were co-sponsors of the legislation. Since small businesses are the principal driver of job creation, one can only conclude that those U.S. senators want to keep unemployment as high as possible, at least through November.

It is important to note, that when we say “2009” in this report, we mean the last full fiscal year to be reported, even if that year happens to end in June 2010. June is one of the largest non-December fiscal year-end months.  Thus, as those firms “switch over,” not only can the projections for 2010 change, but so too can the “historical 2009” results.

Earnings to Fully Recover by Next Year

Regardless of some of the technical timing issues, it means that earnings will have fully recovered by mid-2011, and that full-year 2011 earnings will be 7.2% above full-year 2007 earnings (before the Great Recession started). That is years before we are likely to see a full recovery in the job market. Collectively, the 500 firms in the S&P 500 earned $546.8 billion in “2009,” and that is going to grow to $773.2 billion this year and $895.1 billion in 2011. Translated into “EPS” for the index, earnings are expected to rise from $57.68 in 2009 to $81.35 in 2010 and $93.97 in 2011.

In other words then, the S&P 500 is selling for 18.9x 2009 earnings, but just 13.4x 2010 and 11.6x 2011 earnings. By historical standards, that is quite cheap. Normally, when interest rates and inflation are low, P/E ratios are higher than average. Well we currently have some of the lowest rates of inflation in decades, and interest rates are at near record lows.

It only costs the government 2.46% to borrow for 10 years. (These numbers are based on Thursday 9/2; stocks moved higher on 9/2 as did t-note yields.) It is not hard to find good, solid blue-chip companies that are providing dividend yields of more than that, and not just a bunch of electric utilities either.

One thing is certain, the coupon on a 10 year t-note will not increase over the next 10 years. The odds of the likes of Johnson & Johnson (JNJ, 3.70%), Chevron (CVX, 3.70%) or DuPont (DD, 3.90%) increasing their dividend in the next 10 years is pretty high. Currently 132 S&P 500 stocks yield over 2.48%, and 84 of those have payout ratios of less than 60%. Earnings that are not paid out in dividends are reinvested for future growth, or are used to buy back stock, which also lifts earnings per share. Based on this year’s earnings, the earnings yield is 7.46%, and based on next year it is 8.62%.

Wall of Worry Remains

There is still substantial uncertainty about the strength of the economy. The inventory rebuild cycle is just about over, and the effects of the stimulus are wearing off. State and local governments are facing massive budget shortfalls, and will be forced to lay off many municipal workers like teachers and police. This has kept investor sentiment very muted, but provides a big wall of worry for the market to climb.

The time to buy is when others are despondently selling, and the time to sell is when others are greedily buying. This is particularly true when the actual fundamentals are solid and when the market is simply depressed. There is nothing more fundamental than earnings (OK, perhaps the balance sheets, but those look better than they have in decades as well, with about $1.8 trillion in cash sitting on them) and earnings look pretty good, or at least the expectations for them do.

Expected Growth by Industry

It is worth noting that despite the slowing of the economy, the sector with the highest year-over-year expected growth in the third quarter are some of the most cyclical, including Construction, Aerospace, Autos, Energy, Transportation and Tech -- all of which are currently expected to post third quarter earnings growth of over 40%. Only six sectors are expected to grow less than 10%, and three of those are the most “defensive non-cyclical" sectors: Health Care, Staples and Utilities.

On the other hand, there are two cyclical sectors that are also expecting anemic growth: Retail and Consumer Discretionary. Both of those are tied to the consumer, while the other cyclical sectors tend to have a bit more focus on business-to-business spending. The cyclical sectors also led the way in the second quarter. 

Analysts are still, on balance, raising more estimates than they are cutting. While the ratio of estimate increases to cuts fell to 1.31 from 1.71 last week for 2010, and to 1.31 from 1.27 last week for 2011, those are still healthy levels. At this point, the total level of estimate revision activity is past its seasonal peak, and plunging.

The total number of 2010 estimate changes in the system fell by 34.5% I the last week, while 2011 estimate revisions dropped by 39.6%. Since the revisions ratios are based on the four-week moving totals of estimate changes, it means that changes in the revisions ratios a more due to old estimates falling out of the sample than new estimates being made. The total number of revisions in the system will continue to fall until the third quarter earnings season gets under way in early October.

Scorecard & Earnings Surprise

• It was a very strong earnings season. A total of 496 or 99.2% of firms have reported. The surprise ratio is 4.20 with a 6.06% median surprise. Total net income is 36.9% higher than last year.
• Transports, Conglomerates and Business Service have perfect seasons. Autos, Discretionary and Conglomerates post double-digit median surprises. No sector has more disappointments than positive surprises.
• 73.6% of all firms post positive surprises, 78.0% post higher EPS than last year.

Historically, a “normal earnings season” will have a surprise ratio of about 3:1 and a median surprise of about 3.0%. Thus this is a very positive earnings season.

Scorecard & Earnings Surprise
Income Surprises	Yr/Yr Growth	% Reported	Surprise Median	EPS Surp Pos	EPS Surp Neg	# Grow Pos	# Grow Neg
Auto	- to +	100.00%	37.73	5	1	6	0
Consumer Discretionary	22.35%	100.00%	12.26	28	3	26	7
Conglomerates	-0.58%	100.00%	11.11	9	0	8	2
Transportation	73.88%	100.00%	9.09	8	0	9	0
Oils and Energy	95.92%	100.00%	7.74	28	9	28	10
Computer and Tech	59.29%	100.00%	7.69	46	15	61	9
Finance	40.60%	100.00%	7.18	61	13	55	22
Industrial Products	60.93%	100.00%	6.98	16	2	14	4
Utilities	6.87%	100.00%	6.90	30	11	28	14
Consumer Staples	0.07	100.00%	5.55	28	7	29	9
Aerospace	-0.02	100.00%	5.32	8	2	5	5
Construction	10.60	100.00%	5.00	7	1	9	2
Basic Materials	1.14	100.00%	4.92	15	6	21	2
Business Service	0.20	100.00%	4.17	15	0	16	3
Medical	0.17	100.00%	3.02	38	6	36	10
Retail/Wholesale	0.10	97.78%	0.96	23	11	36	8
S&P	36.94%	99.20%	6.06	365	87	387	107

Sales Surprises

• Sales surprise ratio at 1.59, median surprise 0.97%; 57.9% of all firms do better than expected on top line.
• More firms report growing than shrinking revenues, ratio 3.50:1, 77.6% of all firms report higher revenues than a year ago.
• Revenue growth healthy at 10.7% but still greatly lags earnings growth, pointing to net margin expansion.
• Autos and Transports have perfect sales seasons.
• Utilities, Staples and Aerospace have more disappointers than positive revenue surprises.

Sales Surprises
Sales Surprises	Yr/Yr Growth	% Reported	Surprise Median	Sales Surp Pos	Sales Surp Neg	# Grow Pos	# Grow Neg
Auto	26.09%	100.00%	6.33	6	0	6	0
Construction	7.90%	100.00%	3.16	7	4	7	4
Consumer Discretionary	7.55%	100.00%	2.31	23	10	27	6
Transportation	20.20%	100.00%	2.12	9	0	9	0
Conglomerates	2.10%	100.00%	2.08	6	3	8	2
Computer and Tech	22.08%	100.00%	1.79	50	20	62	8
Industrial Products	18.43%	100.00%	1.59	12	7	17	2
Business Service	6.92%	100.00%	1.42	14	5	15	2
Finance	3.74%	100.00%	1.15	36	15	48	30
Medical	10.31%	100.00%	1.01	29	18	37	10
Basic Materials	18.54%	100.00%	0.73	13	10	21	2
Oils and Energy	27.93%	100.00%	0.69	20	17	34	4
Retail/Wholesale	4.11%	97.78%	0.11	24	20	37	6
Consumer Staples	7.47%	100.00%	-0.35	17	21	25	13
Utilities	0.60%	100.00%	-0.87	18	24	25	18
Aerospace	-2.25%	100.00%	-1.00	3	7	7	3
S&P	10.65%	99.20%	0.97	287	181	385	110

Reported Quarterly Growth: Total Net Income

The first table shows the actual reported growth of those that have already reported, and the second table showing the expected growth for the firms that have yet to report.

• The total net income of firms that have reported so far is 36.9% above what they reported in the second quarter of 2009. These same firms reported year-over-year growth of 47.6% in the first quarter. Sequential earnings growth is 8.93%.
• Seven sectors posting growth of more than 50%. Autos go from loss to profit. Construction and Materials earnings more than double. Only Aerospace and Conglomerates have a lower net income this year than last. Cyclical Sectors do well.
• Growth expected to slow to 17.9% in the third quarter year over year (tougher comp). Earnings expected to drop 6.32% sequentially.
• The numbers in the table (and Revenue growth table) below only refer to those firms which have already reported. Refer back to the % reporting in the scorecard to assess the significance of the sector growth numbers. 

Quarterly Growth: Total Net Income Reported
Income Growth	Sequential Q3/Q2 E	Sequential Q2/Q1 A	Year over Year 2Q 10 A	Year over Year 3Q 10 E	Year over Year 1Q 10 A
Auto	-39.27%	34.54%	- to +	42.58%	- to +
Construction	-20.95%	138.36%	1060.00%	1471.98%	- to +
Basic Materials	-18.98%	1.22%	114.14%	32.36%	177.01%
Oils and Energy	-6.57%	14.80%	95.92%	42.70%	67.81%
Transportation	-0.77%	45.61%	73.88%	55.84%	43.66%
Industrial Products	-8.21%	65.56%	60.93%	23.91%	47.64%
Computer and Tech	-1.18%	15.29%	59.29%	40.87%	64.03%
Finance	-14.13%	-0.16%	40.60%	15.82%	102.38%
Consumer Discretionary	-17.25%	21.08%	22.35%	-8.73%	46.06%
Business Service	0.94%	6.50%	20.30%	13.40%	14.01%
Medical	-8.63%	2.15%	17.23%	2.57%	14.94%
Retail/Wholesale	-8.48%	3.40%	9.84%	5.44%	20.74%
Consumer Staples	4.14%	9.02%	7.01%	3.55%	21.13%
Utilities	17.02%	-6.60%	6.87%	2.42%	1.01%
Conglomerates	-5.47%	24.38%	-0.58%	-4.70%	7.25%
Aerospace	-6.43%	18.77%	-1.73%	135.41%	-5.84%
S&P	-6.32%	8.93%	36.94%	17.87%	47.61%

Quarterly Growth: Total Revenues Reported

The shows the growth of the 496 firms that have actually reported. Since there are so few left to report, those tables have been omitted this week.

• S&P 500 reported revenues up 10.7% year over year in 2Q, down from 12.4% revenue increase the same firms showed in the 1Q. This is a very healthy level of revenue growth.
• Seven sectors have double-digit revenue growth, with four over 20%. Energy gains tied to higher oil prices than last year. Auto, Tech and Transports also over 20% revenue growth. Materials and Industrials over 18%.
• Only Aerospace shows negative revenue growth.

Quarterly Growth: Total Revenues Reported
Sales Growth	Sequential Q3/Q2 E	Sequential Q2/Q1 A	Year over Year 2Q 10 A	Year over Year 3Q 10 E	Year over Year 1Q 10 A
Oils and Energy	4.11%	5.20%	27.93%	19.85%	36.41%
Auto	-8.51%	9.95%	26.09%	-1.58%	24.20%
Computer and Tech	9.54%	6.93%	22.08%	21.20%	17.27%
Transportation	3.73%	8.51%	20.20%	17.23%	10.54%
Basic Materials	-0.16%	4.55%	18.54%	12.56%	19.87%
Industrial Products	-3.22%	19.51%	18.43%	18.58%	2.68%
Medical	2.29%	1.37%	10.31%	8.96%	11.72%
Construction	-6.97%	16.03%	7.90%	2.40%	-4.60%
Consumer Discretionary	8.12%	6.82%	7.55%	1.56%	6.48%
Consumer Staples	-5.00%	7.99%	7.47%	-1.00%	9.46%
Business Service	5.85%	3.08%	6.92%	6.10%	4.91%
Retail/Wholesale	13.38%	2.13%	4.11%	2.04%	5.98%
Finance	-20.12%	-3.48%	3.74%	-20.65%	13.64%
Conglomerates	5.61%	6.04%	2.10%	2.31%	0.07%
Utilities	6.30%	-10.59%	0.60%	2.22%	1.58%
Aerospace	9.69%	3.79%	-2.25%	2.94%	-2.14%
S&P	-2.76%	2.65%	10.65%	4.05%	12.36%

Annual Total Net Income Growth

• Total S&P 500 Net Income in 2009 was 1.5% above 2008 levels, following a 34.4% plunge in 2008. We follow the convention where we are calling the last full fiscal year to be reported “2009” and the next full year to be reported “2010." Thus when some off fiscal-year firms finish their fiscal years and report, it can “change history.”
• Total earnings for the S&P 500 expected to jump 41.9% in 2010, 15.0% further in 2011.
• Earnings recovery to happen by mid-2011, full year 2011 earnings to be 8.6% above 2007 levels. In other words, the recovery in earnings will occur far before the recovery in jobs as we are unlikely to return to 2007 job levels until late 2013 at the earliest.
• Autos, Finance, Basic Materials and Energy expected to be earnings growth leaders in 2010. Construction expected to move from the red to the black. No sector expected to see earnings decline in 2010.
• Five sectors expected to see growth over 20% in 2011, 13 in double digits.
• Despite strong growth in both 2010 and 2011, Energy earnings in 2011 expected to be 23.3% below 2008 levels.

Annual Total Net Income Growth
EPS Growth	2008	2009	2010	2011
Construction	+ to -	- to -	- to +	30.80%
Auto	+ to -	- to +	1912.40%	17.98%
Finance	+ to -	- to +	320.01%	24.78%
Basic Materials	-4.85%	-49.87%	72.27%	18.61%
Oils and Energy	20.80%	-56.30%	50.63%	16.74%
Computer and Tech	15.02%	-4.25%	39.27%	15.58%
Transportation	1.03%	-30.14%	39.23%	20.03%
Industrial Products	3.89%	-28.17%	35.23%	21.46%
Consumer Discretionary	11.56%	-15.82%	21.11%	16.29%
Business Service	24.87%	1.15%	14.23%	15.38%
Aerospace	13.37%	-14.63%	14.09%	11.48%
Retail/Wholesale	1.41%	2.46%	12.89%	13.44%
Consumer Staples	-7.28%	5.65%	10.71%	9.10%
Medical	9.75%	2.19%	6.59%	7.58%
Utilities	-1.28%	-13.51%	2.08%	6.66%
Conglomerates	-9.23%	-23.84%	0.47%	16.22%
S&P	-34.52%	1.77%	41.41%	15.29%

Annual Total Revenue Growth

• Total S&P 500 revenue in 2009 6.75% below 2008 levels.
• Total revenues for the S&P 500 expected to rise 4.59% in 2010, 6.10% in 2011.
• Given 12.4% revenue growth in first quarter, and 10.7% and 4.1% expectations for second quarter and third quarters (weighted average of reported and yet to report) implies a slowdown in the fourth quarter (or increases in full-year estimates).
• However, quarterly revenue estimates are thinner (fewer estimates in the consensus) than annual ones.
• Energy to lead 2010 revenue race, Tech and Transports to take silver and bronze, but Materials and Industrials have a chance to make it on to the medal stand.
• Financials the biggest drag on 2010 revenue growth, Staples only other sector expected to post lower top-line for the year. Revenues for Financials are notoriously flakey -- low interest rates depress interest income (but also interest expense).
• Medical, Retail and Aerospace only sectors to have positive revenue growth for all three years.
• Looking out to 2011, Energy is the only sector expected to see double-digit revenue growth, although four other sectors expected to have revenue growth over 8%.

Annual Total Revenue Growth
Sales Growth	2009	2010	2011
Oils and Energy	-34.52%	21.68%	12.95%
Computer and Tech	-6.22%	18.14%	8.09%
Transportation	-13.65%	13.46%	8.17%
Basic Materials	-19.30%	12.98%	7.53%
Industrial Products	-19.55%	12.62%	9.76%
Medical	6.06%	9.25%	3.15%
Consumer Discretionary	-9.55%	6.06%	5.31%
Business Service	-2.35%	5.87%	5.94%
Retail/Wholesale	1.25%	5.21%	5.39%
Utilities	-5.87%	4.48%	2.43%
Auto	-21.36%	3.16%	9.78%
Conglomerates	-13.27%	1.02%	2.04%
Aerospace	6.30%	0.50%	6.32%
Construction	-15.92%	0.31%	7.60%
Consumer Staples	-2.13%	-2.25%	4.30%
Finance	21.18%	-19.01%	2.31%
S&P	-6.75%	4.75%	6.05%

Revisions: Earnings
The Zacks Revisions Ratio: 2010

• Revisions ratio for full S&P 500 at 1.39, down from 1.71 last week -- still positive.
• Transports and Industrials strong, reflecting big positive surprises.
• Five sectors seeing more cuts than increases, Construction weakest by big margin.
• Ratio of firms with rising to falling mean estimates at 1.31, down from 1.69 last week -- a positive reading.
• Total number of revisions (4 week total) down to 2,044 from 3,536 (-42.2%).
• Increases down to 1,189 from 2,230 (-46.7%), cuts down to 855 from 1,306 (-34.5%).
• Total Revisions activity passed seasonal peak, now plunging. As it does, changes in the revisions ratios will be driven by estimates falling out more than by new estimates.

The Zacks Revisions Ratio: 2010
Sector	%Ch Curr Fiscal Yr Est - 4 wks	# Firms Up	# Firms Down	# Ests Up	# Ests Down	Revisions Ratio	Firms up/down
Transportation	0.17	6	1	6	1	6.00	6.00
Industrial Products	0.60	9	6	33	6	5.50	1.50
Consumer Discretionary	-0.60	17	10	143	34	4.21	1.70
Auto	1.46	3	0	5	2	2.50	999.99
Utilities	0.15	25	16	128	58	2.21	1.56
Aerospace	-0.03	4	4	9	5	1.80	1.00
Computer and Tech	1.17	33	20	221	130	1.70	1.65
Basic Materials	0.02	9	10	27	19	1.42	0.90
Consumer Staples	-0.06	17	11	73	53	1.38	1.55
Finance	0.81	40	33	176	135	1.30	1.21
Conglomerates	-1.05	4	2	5	4	1.25	2.00
Medical	0.01	21	20	65	69	0.94	1.05
Oils and Energy	-0.66	19	19	107	114	0.94	1.00
Business Service	0.43	9	7	23	25	0.92	1.29
Retail/Wholesale	-1.31	17	22	152	169	0.90	0.77
Construction	-0.64	7	2	16	31	0.52	3.50
S&P	0.12	240	183	1189	855	1.39	1.31

Revisions: Earnings
The Zacks Revisions Ratio: 2011

• Revisions ratio for full S&P 500 at 1.08 down from 1.27, now in neutral territory.
• Industrials, Discretionary and Transportation have at least three increases per cut.
• Several sector revisions ratios based on very thin samples.
• Eleven sectors with positive revisions ratios, four with ratios below 1.0.
• Ratio of firms with rising estimate to falling mean estimates at 1.08 down from 1.12; still a neutral reading.
• Construction sector looks very weak for 2011, more than five cuts per increase.
• Total number of revisions (4 week total) at 1,984, down from 3,283 (-39.6%).
• Increases down to 1,032 from 1,834 (-43.7%) cuts fall to 952 from 1,449 (-34.3%).

The Zacks Revisions Ratio: 2011
Sector	%Ch Next Fiscal Yr Est - 4 wks	# Firms Up	# Firms Down	# Ests Up	# Ests Down	Revisions Ratio	Firms up/down
Industrial Products	0.49	8	7	38	10	3.80	1.14
Consumer Discretionary	-0.07	18	8	113	37	3.05	2.25
Transportation	0.07	5	2	6	2	3.00	2.50
Conglomerates	-0.32	5	4	10	6	1.67	1.25
Basic Materials	0.16	13	6	27	18	1.50	2.17
Consumer Staples	0.02	19	9	62	42	1.48	2.11
Business Service	0.16	7	8	22	16	1.38	0.88
Computer and Tech	0.64	32	23	186	139	1.34	1.39
Finance	-0.62	32	39	155	124	1.25	0.82
Aerospace	-0.22	2	7	13	11	1.18	0.29
Utilities	-0.33	23	16	108	99	1.09	1.44
Auto	0.42	2	1	3	3	1.00	2.00
Medical	-0.24	19	24	64	82	0.78	0.79
Oils and Energy	0.07	18	20	99	142	0.70	0.90
Retail/Wholesale	-0.82	17	21	118	172	0.69	0.81
Construction	-12.21	0	9	8	49	0.16	0.00
S&P	-0.36	220	204	1032	952	1.08	1.08

Total Income and Share

• S&P 500 earned $546.8 billion in 2009, expected to earn $773.2 billion in 2010, $891.4 billion in 2011.
• Finance share of total earnings moves from 5.8% in 2009 to 17.2% in 2010, 18.7% in 2011, and regains total earnings crown from Tech.
• Medical share of total earnings far exceeds market cap share (index weight), but earnings share expected to shrink from 17.3% in 2009 to 12.2% in 2011.
• Market Cap shares of Construction, Retail, Transportation, Industrials and Business Service sectors far exceed both 2010 and 2011 earnings shares.
• Finance, Energy and Autos have rising earnings shares and market cap shares well below 2011 earnings shares.

Total Income and Share
Income ($ Bil)	Total Net Income $ 2009	Total Net Income $ 2010	Total Net Income $ 2011	% Total S&P Earn 2009	% Total S&P Earn 2010	% Total S&P Earn 2011	% Total S&P Mkt Cap
Finance	$31,736.00	$133,293.00	$166,323.00	5.80%	17.24%	18.66%	16.36%
Computer and Tech	$92,691.00	$129,093.00	$149,212.00	16.95%	16.70%	16.74%	17.35%
Medical	$94,660.00	$100,902.00	$108,546.00	17.31%	13.05%	12.18%	10.75%
Oils and Energy	$62,731.00	$94,490.00	$110,311.00	11.47%	12.22%	12.37%	10.48%
Consumer Staples	$57,443.00	$63,597.00	$69,384.00	10.51%	8.23%	7.78%	9.18%
Retail/Wholesale	$51,097.00	$57,681.00	$65,436.00	9.35%	7.46%	7.34%	8.44%
Utilities	$49,718.00	$50,754.00	$54,136.00	9.09%	6.56%	6.07%	6.66%
Consumer Discretionary	$23,244.00	$28,151.00	$32,737.00	4.25%	3.64%	3.67%	4.34%
Conglomerates	$26,275.00	$26,398.00	$30,681.00	4.81%	3.41%	3.44%	3.73%
Basic Materials	$13,471.00	$23,206.00	$27,524.00	2.46%	3.00%	3.09%	3.24%
Aerospace	$13,054.00	$14,893.00	$16,603.00	2.39%	1.93%	1.86%	1.70%
Industrial Products	$10,621.00	$14,362.00	$17,444.00	1.94%	1.86%	1.96%	2.23%
Business Service	$11,661.00	$13,321.00	$15,370.00	2.13%	1.72%	1.72%	2.08%
Transportation	$8,202.00	$11,419.00	$13,706.00	1.50%	1.48%	1.54%	1.96%
Auto	$471.00	$9,487.00	$11,193.00	0.09%	1.23%	1.26%	0.98%
Construction	($317.00)	$2,137.00	$2,796.00	-0.06%	0.28%	0.31%	0.51%
S&P	$546,758.00	$773,184.00	$891,401.00	100.00%	100.00%	100.00%	100.00%

P/E Ratios

• Trading at 13.4x 2010, 11.6x 2011 earnings, or earnings yields of 7.46% and 8.62%, respectively.
• Earnings Yields extremely attractive relative to 10-year T-Note rate of 2.71%.
• Autos have lowest P/E based on 2009 and 2010 earnings. Autos, Energy, Financials cheapest based on 2011 earnings.
• Construction has highest P/E for 2010 and 2011.
• Auto and Finance high 2009 P/E’s to fall dramatically in 2010 and 2011.
• S&P 500 earned $57.68 in 2009: $81.35 in 2010 and $93.97 in 2011 expected.

P/E Ratios
P/E	2008	2009	2010	2011
Auto	-15.0	214.5	10.7	9.0
Medical	12.0	11.8	11.0	10.3
Oils and Energy	7.6	17.3	11.5	9.8
Aerospace	11.5	13.5	11.8	10.6
Finance	-18.6	53.4	12.7	10.2
Utilities	12.0	13.9	13.6	12.7
Computer and Tech	18.6	19.4	13.9	12.0
Basic Materials	12.5	24.9	14.4	12.2
Conglomerates	11.2	14.7	14.6	12.6
Consumer Staples	17.5	16.5	14.9	13.7
Retail/Wholesale	17.5	17.1	15.1	13.4
Consumer Discretionary	16.3	19.3	16.0	13.7
Industrial Products	15.6	21.7	16.1	13.2
Business Service	18.7	18.5	16.2	14.0
Transportation	17.3	24.7	17.7	14.8
Construction	-26.6	-165.9	24.6	18.8
S&P	19.3	18.9	13.4	11.6

Biggest FY1 Revisions

The table below shows the S&P 500 firms with the biggest increases in their FY1 (mostly 2010) mean estimate over the last 4 weeks. To qualify, the current mean estimate has to be greater than $0.50 and there must be more than 3 estimates for FY1. In addition to the change in the mean estimate, the net percentage of estimates being raised is shown for both  FY1 and FY2, as well as the P/E ratios based on each year’s earnings is shown.

Note that estimate momentum and value are not mutually exclusive, and that two of the firms with the biggest positive estimate momentum have single digit P/E’s based on FY1 earnings. The most interesting of these firms will be where the net revisions percentage (#up-#dn/Tot) is more than 0.50 but less than 1.00.

Big mean estimate changes based on a handful of individual revisions are suspect, but could prove to be the most interesting if other analysts follow suit. On the other hand if all the analysts have raised their estimates already, the mean estimate is less likely to rise again over the next month.

Biggest FY1 Revisions
Company	Ticker	%Ch Curr Fiscal Yr Est - 4 wks	%Ch Next Fiscal Yr Est - 4 wks	# Up-Dn/Tot %Ch Curr Fiscal Yr Est - 4 wks	# Up-Dn/Tot %Ch Next Fiscal Yr Est - 4 wks	P/E using Curr FY Est	P/E using Next FY Est
Teradyne Inc	TER	49.27%	23.64%	0.93	0.54	3.85	4.30
Sunoco Inc	SUN	33.77%	5.15%	0.62	0.44	19.07	13.72
Metropcs Commun	PCS	31.34%	20.91%	0.72	0.69	14.21	10.64
Cb Richard Ells	CBG	23.62%	9.56%	1.00	0.83	24.55	17.27
Eastman Chem Co	EMN	19.28%	12.71%	1.00	0.91	9.47	9.11
Kla-Tencor Corp	KLAC	18.37%	60.51%	0.73	0.13	7.36	7.30
Nrg Energy Inc	NRG	16.32%	13.24%	0.50	0.38	8.16	16.84
Ameriprise Finl	AMP	13.35%	7.82%	0.92	0.75	10.84	8.87
Qep Resources	QEP	13.27%	5.82%	0.50	0.00	21.70	19.20
Coventry Hlthcr	CVH	12.84%	4.87%	0.88	0.67	7.20	7.67
Priceline.Com	PCLN	12.38%	14.50%	1.00	1.00	25.93	21.04
Autodesk Inc	ADSK	11.97%	5.20%	1.00	0.56	28.04	22.42
Appld Matls Inc	AMAT	11.24%	7.39%	0.72	0.65	11.35	8.41
Ameren Corp	AEE	10.37%	2.48%	0.75	0.20	10.91	12.40
Wynn Resrts Ltd	WYNN	10.32%	11.78%	0.47	0.43	53.38	37.50
Molex Inc	MOLX	10.24%	11.19%	1.00	0.45	10.26	9.37

Data in this report, unless stated otherwise, is through the close on Thursday 9/2/2010.

We use the convention of referring to the next full fiscal year to be completed as 2010, not all firms are on December fiscal years, this can cause discontinuities in the data, particularly around this time of year. The data is based on FY1, not based on 2010, even though I may call it 2010 in the report. All numbers, including historical ones, reflect the current composition of the S&P 500, thus some historical numbers may differ from those reported by S&P which are based on the composition of the index at the time of the reports.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

 
CHEVRON CORP (CVX): Free Stock Analysis Report
 
DU PONT (EI) DE (DD): Free Stock Analysis Report
 
JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
 
Zacks Investment Research