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Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Friday, October 23, 2009

More On SP 500 Profits

This entry builds from the 10/21 post on earnings. With
earnings in recovery mode, analysts now see quarterly
operating net improving serially straight through the
final quarter of 2010, and they expect full year SP 500
eps for 2010 to be up by 31% to about $73.50. Now, this
represents a fairly strong takeoff, and as discussed in the
10/21 post, suggests that profit margins will benefit from
a positive turn in top - line or sales growth. Looking out
to Q 4 ' 10, the consensus is for quarterly net of about
$20.20. This is hardly a stretch with modest real growth
in sales of 3% and a pricing gain of 2%. So, I do not think
the numbers needed to produce much stronger earnings
in 2010 are heroic by any stretch.

For perspective, should Q 4 ' 10 eps come in at $20.20, we
can compare that number to a mid - range $25. based on
the SP 500 earnings channel for the past 20 years. The
projection represents good recovery from severely
depressed levels, but would fall far short of the indicated
norm of the past 20 years.

You should know that earnings projections through 2010
are somewhat backloaded in that no big lift is expected
until mid - 2010. So, as analysts now see it, the big test
of their projections is still 9 months out.

I think the above fairly presents the earnings
fundamentals game plan out through 2010. It looks
daunting, but really represents a "lay up" with a modest
modicum of economic recovery.

I think investors are clearly looking well into 2010 with
the SP 500 at current levels. And that is an important
takeaway for you as you assess the economic outlook for
yourself from week to week and month to month.

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