At this week’s investment policy committee meeting, we discussed the outlook for the fourth-quarter 2012 earnings.
Capital IQ consensus estimates currently call for a 3.3% increase in fourth-quarter results. Seven of the 10 sectors in the “500” are expected to show improvements, led by Consumer Discretionary, Telecom Services and Financials. The Health Care, Industrials and Information Technology groups are projected to post year-over-year declines. Companies will have a few things to blame should Q4 results not live up to the hype, in our opinion, including Hurricane Sandy and investment indecision as a result of the Fiscal Cliff, along with a near 2% average increase in the value of the U.S. dollar. A welcome tailwind, however, could be the 8% decline in the average cost of oil.
Based on Capital IQ estimates for quarterly growth in S&P 500 operating EPS, it appears as if the earnings trough occurred in mid-2012, as quarterly expectations through Q4 2013 show sequential improvement. Yet one can’t help but get the feeling of déjà vu, as the uphill back-end-loaded trajectory of 2013 estimates looks remarkably similar to the slope of 2012 EPS estimates at this time last year. In particular, the Q4 2012 EPS were projected to advance 16.5%, much as Q4 2013 results are currently seen rising 17.7%. Today, however, Capital IQ estimates place Q4 2012 growth at a much more humble 3.3%. One can’t help but wonder if a similar haircut should be expected this year as well.
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