"As-reported earnings are expected to show significant gains due to a very depressed Q4, 2002 value," said Howard Silverblatt, equity market analyst, Standard & Poor's. "So far, 74% of the As-reported issues (225 of 303) have beaten last year's figures and 'Sales reported' showed that 81% of S&P 500 issues (245 of 302) beat 2002's value." S&P Core Earnings, which among other things adjusts for pension accounting and options expenses, are expected to increase 56% due to the decline in unusual items being reported this year. He added, "We believe that the convergence of As-reported and S&P Core Earnings figures has positive implications for the overall quality of corporate earnings." More about the S&P Core Earnings methodology and figures can be found on www.coreearnings.com.
Operating margins improved 19%, gaining from 7.4% in 2002 to 8.8% for 2003. As-reported earnings showed a 53% increase to 8.3 % from 5.4%, mostly due to the reduced value of special items. Sales improved 9.0%, for the issues that have reported so far. S&P expects sales for the full year to show its first gain in three years and to continue into 2004.
Sectors
The Consumer Discretionary sector had the most consistent operating results with 35 of the 40 issues in the S&P 500 reporting improved earnings, while Utilities lagged with 9 of the 14 reporting lower earnings. Variance in Operating and As-reported earnings were significant in the Telecommunications sector with sales decreasing 3.9% operating earnings decreasing 22.4% and As-reported earnings declining 84.3%.
"For 2004, we estimate that operating earnings will increase 13% overall with Information Technology continuing its 2003 recovery with a 50% gain," said Silverblatt. "We expect Energy to have a difficult year with an estimated 17% reduction in 2004 earnings."
S&P 500 Targets
The bottom-up S&P 500 one-year target price is 1248 and 331 issues in the S&P 500 are expected to increase in price over the next year while 167 are expected to be lower. Among the 10 sectors, Information Technology leads with 55 of the 83 issues expected to go up and Utilities is estimated to have a mixed year with 17 of the 36 issues gaining in price.
With 32 S&P 500 issues increasing their dividend rate in January, Standard & Poor's has increased its 2004 projected payment to $19.25.
The increased 12-month S&P 500 total return estimate is now 14.0%.
Standard & Poor's
Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of independent credit ratings, indices, risk evaluation, investment research, data and valuations. With 5,000 employees located in 20 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit www.standardandpoors.com.
