The Trend in Earnings Estimates

Over the past year, Wall Street has scaled back its earnings estimates for the S&P 500. What’s interesting though is that beyond Q1, which ends in two weeks, the dropping forecasts have come mostly come to an end. For Q4, in fact, estimates have started to rise. Note the large gap between Q1 and Q2 earnings estimates.

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These of course are just estimates and analysts don’t have a great track record, but it’s interesting to note that earnings acceleration is widely expected to begin soon. We won’t have hard evidence until the second quarter earnings season starts after July 4th.

I’m not yet convinced that earnings will be so rosy later on this year. But if Wall Street’s forecast is correct for this year and next ($111.25 and $124.72), then I think this rally has more room to run. If the market were to trade at 14 times 2014’s estimate, which is hardly excessive, that translates to an S&P 500 of 1,746.

Posted by on March 18th, 2013 at 10:31 pm


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