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Stocks Expected To See 12% Increase In Revenues In Q2, 41% Increase In EPS, And A Summary Outlook From Rosenberg

Tyler Durden's picture





 

With the imminent launch of the Q2 earnings season, below is a summary of consensus for year-over-year top and bottom line performance. In summary, the outlook is for a 12% pick up in top line YoY (ex fins), and pretty much staying flat at that level of outperformance for the next 2 quarters, and for a 41% rise in EPS compared to Q2 of 2009 per Bloomberg consensus estimates. For those looking for further granularity, David Rosenberg presents a detailed break down sector by sector, and warns of the risks to betting it all on the earnings parade, even as analysts are once again at near all time record bullishness on stocks.As a reminder, the consensus view is for a 2010 absolute EPS of 82, and for a simply ridiculous all time record 96 in 2011, higher than the 88 seen all the all time high three years ago, when the economy had the benefit of a multi-trillion shadow credit system. Who knows, maybe the Fed can take over that full responsibility as well.

Sales consensus:

EPS consensus:

And Rosie's view on earnings, and why irrational bullishness is very much unwarranted:

Bottom-up analysts expect second quarter earnings to come in at 27% year-over-year growth, no change from the last few weeks but about five percentage points higher than expectation in early April. This is a major slowdown from the near 60% rate in Q1; however, but analysts have become increasingly more bullish even as the economy has apparently hit an inflection point.

We should see significant sector rotation for Q1 to Q2. While Financials led the way in Q1 (up over 370% partly due to very weak comps), Materials and Energy are expected to be the outperformers in Q2 at 91% and 72%, respectively (Q2 Financials results are expected to be much more modest, at 18%).

Analysts see a dichotomy in consumer-related earnings as well — Discretionary earnings are forecast to be close to 50%, while Staples are expected to come in at 5%. In fact, analysts have become progressively more bullish on Consumer Discretionary earnings over time — last October estimates were half of what they are today, at around 28%. The opposite is true for Staples — here analysts have continuously marked down forecasts from close to 10% last year to currently just over 5% now.

The laggards in Q2 are expected to be Utilities (-5%), Telecom (-2%) and Health Care (+5%).

Looking ahead to Q3, earnings are expected to come in around 25% — estimates have fluctuated around this point for several months. Financials are expected to be very strong, at 81%, and have also been continuously marked up (last year estimates were at 40% growth). Consumer Discretionary profits are at 20% and Staples are at 6%.

Revenue growth in Q2 is expected to be 9% and excluding energy are at 6%. Both top line performance and corporate guidance are going to be the key drivers in coming weeks. The biggest hurdles are in Energy and Materials — they are forecast to have strong top line growth, at 28% and 21% respectively; Financials are expected to see revenues fall by 7% YoY.

As for all of 2010, the consensus is at $82 operating EPS, and for a new record to be reached in 2011, at $96 — breaking the record of $88 three years ago. Good luck in seeing a further 30% increase in profits with nominal GDP rising at a 3.0-4.0% annual rate at best in the next six quarters and at a time when margins are already back to cycle peaks.

The flattening yield curve and prospect of a rebound in the unemployment rate cannot be good news for the Financials as well, in our view. Plus, credit problems continue unabated with the FDIC closing four more banks, bringing the year to date tally to 88 — on par to surpass the 140 financial failures in 2009.

As for the Consumer Discretionary group, the news is not good. Credit remains tight (see Borrowers Hit New Home-Loan Hurdles on page A3 of the weekend WSJ). With the Memorial Day boost to the chain store sales data out of the way for June, and even with that the trend was at the low end of expectations (3%), the weakness can be expected to be glaring when the July data roll out. Housing is still in a complete state of disarray (see Keep an Eye on Homebuilder Bonds for Clues to a Double Dip on page 15 of the weekend FT). There is also room for more wealth-destroying as home prices decline — the Economist runs with an article (on page 73) and a table showing the degree of overvaluation left (up to 11% in the U.S.A.; and 23% in Canada; not to mention over 30% in Britain and France; 50% in Spain!).

And, since Congress has been dragging its feet in terms of extending emergency unemployment benefits, we can expect to see around three million fall off the rolls by the end of the month — and along with that, an estimated $50 billion in annualized income transfers from Uncle Sam to the household sector. That’s akin to the Fed hiking rates five times in terms of a dampening impact on aggregate demand — and yet, because of the “steep” yield curve, nobody believes the economy can relapse (even though the last three recessions in Japan all occurred with the yield curve positively sloped, and guess why? Because it can’t invert once policy rates are at zero). And don’t forget, we are going to see upwards of 700,000 Census workers lose their job between now and September. While some will undoubtedly find work elsewhere, has this lost income been adequately factored into consensus forecasts as well? We think not. Double-dip or not, downside economic surprises are quite likely going to remain a dominant theme through the summer.

Moreover, households are going to have to start preparing for a big tax hit next year too, and across a variety of areas. The top two marginal rates are expected to rise (to 39.6% from 35.0% and to 36% from 33%). For the high-income taxpayer, the rate on capital gains rises to 20% from 15%; dividends will get taxes at the top marginal rate of 39.6%. The “death tax” is slated to come back next year and the President is seeking a 45% tax on estates above $3.5 million per person. Personal exemptions are to be phased out and deductions will be limited.

On top of that, a 3.8% surtax will be applied on investment income for high-income earners. All in, we are talking about a near 2% fiscal drag for 2011 at a time when the run-rate on real final sales (GDP excluding inventories) is barely more than 1%. Do the math — how exactly is the economy going to escape a relapse, unless Bernanke has another rabbit in his hat?

 


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Mon, 07/12/2010 - 10:20 | Link to Comment firstdivision
firstdivision's picture

SHAW beat earnings by $.03, but is tanking today.  Analysts priced in a bit too much optimisim in the price there the last week.  Looking like a nice kick off to earnings season.  Let's see what happens with Alcoa after close. 

Mon, 07/12/2010 - 10:04 | Link to Comment Sudden Debt
Sudden Debt's picture

I just knew you could write something positive Tyler! :)

Mon, 07/12/2010 - 10:07 | Link to Comment Sudden Debt
Sudden Debt's picture

Tyler, do you think it's smart to load up on shorts at closing for BP?

Today they where going to announce the relief wells fix.

Mon, 07/12/2010 - 10:10 | Link to Comment decon
decon's picture

Watch that Bernanke feller I've seen him do some things!!

 

Just when you think he's thrown in the kitchen sink, he shows up with a dump truck full of kitchen sinks.

Mon, 07/12/2010 - 10:10 | Link to Comment VK
VK's picture

ROFL! The bulls are going to lose their shorts and much more :)

David Rosenberg should just come out of the closet and say he's expecting the greatest depression to continue and become much, much worse. 

Mon, 07/12/2010 - 20:01 | Link to Comment traderjoe
traderjoe's picture

Because if he said that he would lose his job and never be able to work on Wall Street again. 

Tue, 07/13/2010 - 18:18 | Link to Comment dnarby
dnarby's picture

He works out of Canada.

Mon, 07/12/2010 - 10:17 | Link to Comment Gimp
Gimp's picture

When all else fails to get the little guys back into the big ponzi, roll out the ridiculous! Unemployment back to 5% by end of year, yipee.

Mon, 07/12/2010 - 10:23 | Link to Comment Joe Shmoe
Joe Shmoe's picture

Another sign the BS machine is being cranked up again: I'm starting to get calls again from "consulting" firms that "represent small cap stocks that are on the verge of breaking out!"

I always see these as pump and dump gigs.  I wish I'd kept a list of all the stocks recommended to me this way.  

Mon, 07/12/2010 - 10:43 | Link to Comment SheepDog-One
SheepDog-One's picture

All Bernanke ever had in his hat in the first place was a rabbit shaped turd.

Mon, 07/12/2010 - 10:48 | Link to Comment Tarheel
Tarheel's picture

My takeaway from this is that analyst estimates are very high, making it more difficult for companies to meet or exceed their earnings targets. This should cause the market to take a dump, unless companies cook their books like they did in 2009...

Mon, 07/12/2010 - 10:53 | Link to Comment mephisto
mephisto's picture

Stocks expected to see 12% increase in revenue, EPS 41% higher than last year, and you too can grow your dick 4 inches in 2 weeks just by clicking here.

Mon, 07/12/2010 - 11:15 | Link to Comment ejmoosa
ejmoosa's picture

Not a very impressive performance considering 1 year ago 68% of companies had earnings worse in 2009 than 2008.

 

And unfortunately, this is going to be as good as it gets.

 

 

Mon, 07/12/2010 - 11:20 | Link to Comment SheepDog-One
SheepDog-One's picture

Lets see CNBC gather up CEO's of companies that have hired 100 or more permanent full time employees for a round table discussion of green shardsd. I say they cant do it, or they already would have done so.

Mon, 07/12/2010 - 11:41 | Link to Comment HEHEHE
HEHEHE's picture

I think you'll see a lot of selling the news this earning season. 

Mon, 07/12/2010 - 11:58 | Link to Comment Rainman
Rainman's picture

Maybe there's a plan to allow the banksters to value their shit assets at 150% of par. All Zombies can do that, ya know. They're already dead.

Mon, 07/12/2010 - 12:01 | Link to Comment jkruffin
jkruffin's picture

Anyone else hearing the news of National Guard moving heavily into the GoM region where they are about to force mandatory evacuations of gulf coast states?  This is very troubling IMO, as we can move our own citizens forcefully at will, but we can't support other states in blocking illegal immigrants from flooding the country.

Obama is a complete failure, complete idiot, and nothing but a puppet.

Mon, 07/12/2010 - 20:03 | Link to Comment traderjoe
traderjoe's picture

Links please. 

There's not much distinction made here on Republicans and Democrats. Some power mongering circle jerk with the banksters...

Thu, 08/19/2010 - 10:56 | Link to Comment herry
herry's picture

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