Fewer S&P Names Beating Street, So Far

[Stocks-to-Watch]

It’s looking like fewer companies in the Standard & Poor’s 500 Index are going to beat Wall Street profit estimates in this go-around of quarterly earnings reports, according to FactSet.

On average, 72% of companies in the S&P 500 produce profit figures that are ahead of the average of analysts’ estimates. Right now, 62% of companies have come in ahead of estimates with earnings season not yet complete, writes John Butters, a senior earnings analyst at FactSet.

Positive surprises this quarter have included that of railroad Union Pacific (UNP), whose fourth quarter profits rose 24% thanks to strong pricing. Contrast that with Capital One Financial (COF), which reported late Thursday that quarterly profits fell 42% as it increased provisions for loan losses; its shares are down about 6% today, or $2.97, to $45.81.

If you remove American International Group (AIG) from quarterly growth estimates for the S&P 500, the numbers tell a different story. AIG, you’ll recall, took a $4.2 billion charge in the fourth quarter of 2010 as it strengthened loan loss reserves at its Chartis unit. AIG is expected to generate fourth quarter 2011 earnings of 63 cents per share, compared to a loss of $16.20 per share in the year-ago period. Writes Butters:

“If AIG is excluded from the index, the blended earnings growth rate for the financials sector drops from 65.4% to -2.2%, and the blended earnings growth rate for the entire S&P 500 falls from 9.5% to 2.2%.”

With profitability in question, especially in the financial sector, it’s no surprise that stocks remain on sale. The S&P 500 is now trading with a price-to-earnings multiple of 12.3 times forward earnings, compared to a 12-month forward P/E over the past decade of 14.7 times on average.



Original Article Source by Barrons.com