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  1. Home
  2. / Investing
  3. / Economic Data

The Week Ahead: Watch That Earnings Multiple

If Street targets are cut, the S&P P/E ratio could rise past 15x.
By CHRIS VERSACE
Feb 02, 2014 | 08:00 PM EST
Stocks quotes in this article: MDC, SPF, USG, TWTR, AOL, EMR, CMI, XYL, MWA, KORS, RL, BWLD, DIS, LGF

When you look a chart of the S&P 500 from last week, the sharp ups and downs bring to mind a roller coaster. In many ways, that characterized the market over the past five trading days as concerns persisted over emerging markets from Turkey to Hungary, and as we saw a modest pick-up in Fed stimulus-tapering. That's not to mention, of course, another onslaught of corporate earnings. The tumultuous week left the S&P 500 down 3.56% for all of January, marking the worst performance for the index since May 2012.

As we've waded more deeply into the December-quarter earnings season, we've now witnessed 54 companies in the S&P 500 issue negative earnings-per-share guidance, as compared with only 10 offering positive EPS outlooks. That comes to 82% negative forecasts out of all the forward outlooks, well above the five-year average of 64%. Now, that said, a slew of companies is still set to report their earnings -- this week alone, 93 companies in the S&P 500 are on tap -- so those results will give us a better sense of what the true ratio is.

When I look at these earnings reports roll in, the question I ponder is how aggressive full-year earnings expectations had been ahead of 2014. Per date from FactSet, the Street's average full-year earnings target sits at $120.09 per share, up 9.9% from $109.30 in 2013. In 2012, the consensus was $103.80.

Is that 9.9% growth forecast likely to hold as we slug through this week and next? That's one of the questions the stock market and investors will grapple with this week. If expectations are revised down, it could mean that the index will have been trading around 15x to 15.5x those earnings estimates, as compared with the 14.85x as of Friday's close. For those wondering, the P/E ratio has averaged at 13.1x over the past five years, and 13.9x over the past decade, according to FactSet.

This means that, once the Super Bowl is over, Wall Street will be rolling up its sleeves to break down, decode, decipher and question earnings from more than 960 earnings reports and more than 500 webcasts. Yes, it'll be a very busy week, especially after we factor some of the key economic data that are also on its way.

On the economic front, you may want to watch for Monday's manufacturing index from the Institute for Supply Management following recent durable-orders data and Markit's U.S. flash purchasing managers index readings. Investors will also be looking to see if auto and truck sales rebounded in January after December's disappointing results. Of course, the big piece of data will be Friday's January employment report, and many will be looking to gauge whether the December report was an aberration or the start of a slowdown in job creation. Underneath that headline figure, the two items to watch, in my view, will be the number of folks exiting the labor force and wage data.

Of the hundreds of earnings reports ahead this week, my short list includes several homebuilders, including MDC (MDC) and Standard Pacific (SPF) -- which should help shed light on if and how the harsh winter weather is impacting these types of names. Those comments will shape what we can expect from wallboard manufacturer USG (USG) later this week. Following results from Facebook (FB) and Yahoo! (YHOO), we'll want to tune in to Twitter (TWTR) and AOL (AOL) and see if they deliver more of the same.

Meanwhile, with emerging economies in question, and given signs that Europe is picking up, I'll be looking to Emerson (EMR), Cummins (CMI), Xylem (XYL) and Volvo for signs of confirmation. Also, when it comes to the drought pain point in California and other parts of the country, what benefit is this likely to deliver in the coming months? For insight into that, look to Mueller Water (MWA) and the aforementioned Xylem.

Finally, how's the consumer holding up? It's a great question, and this week that means paying attention to Michael Kors (KORS), Polo Ralph Lauren (RL), Buffalo Wild Wings (BWLD), Disney (DIS) and Lions Gate Entertainment (LGF).

Again, there is no shortage of corporate earnings in the coming week, and here's a greater list of what's on tap in the week ahead:

__________________

Economic Calendar

Monday, Feb. 3

  • Markit Eurozone Manufacturing Purchasing Managers Index (PMI)
  • Markit U.S. Manufacturing PMI
  • J.P. Morgan Global Manufacturing PMI
  • Institute for Supply Management (ISM) Index (January)
  • Construction Spending (December)
  • Auto and Truck Sales (January)

____

Tuesday, Feb. 4

  • Factory Orders (December)

____

Wednesday, Feb. 5

  • Markit Economics Eurozone Composite PMI
  • J.P. Morgan Global Composite PMI
  • Mortgage Bankers Association (MBA) Mortgage Index (Weekly)
  • ADP Employment Report (January)
  • ISM Services Index (January)
  • Crude Inventories (Weekly)

____

Thursday, Feb. 6

  • Challenger Job Cuts (January)
  • Initial and Continuing Jobless Claims (Weekly)
  • Trade Balance (December)
  • Productivity and Unit Labor Costs (Fourth Quarter of 2013)
  • Natural Gas Inventories (Weekly)

____

Friday, Feb. 7

  • Employment Report (January)
  • Consumer Credit (December)

________________

Earnings Calendar

Monday, Feb. 3

  • Advent Software (ADVS)
  • Hologic Inc. (HOLX)
  • Luminex Corp. (LMNX)
  • Peregrine Semiconductor (PSMI)
  • Rudolph Technologies (RTEC)
  • Sysco Corp. (SYY)
  • Take-Two Interactive (TTWO)

____

Tuesday, Feb. 4

  • Arch Coal (ACI)
  • AGCO Corp. (AGCO)
  • ARM Holdings (ARMH)
  • Buffalo Wild Wings (BWLD)
  • Cerner Corp. (CERN)
  • Church & Dwight (CHD)
  • Emerson Electric (EMR)
  • Eaton Corp. (ETN)
  • Gannett Co. (GCI)
  • The Hain Celestial Group (HAIN)
  • International Paper (IP)
  • Michael Kors (KORS)
  • McGraw Hill Financial (MHFI)
  • Ryder Systems (R)
  • Elizabeth Arden (RDEN)
  • Sirius Satellite Radio (SIRI)
  • Sensata Technologies (ST)
  • Vitesse Semiconductor (VTSS)
  • Xylem Corp. (XYL)
  • Yum! Brands (YUM)

____

Wednesday, Feb. 5

  • Automatic Data Processing (ADP)
  • Akamai Technologies (KAM)
  • Ameriprise Financial (AMP)
  • Coca-Cola Enterprises (CCE)
  • The Walt Disney Company (DIS)
  • Estee Lauder Co. (EL)
  • Green Mountain Coffee (GMCR)
  • Heartland Payment Systems (HPY)
  • Humana Inc. (HUM)
  • InterActive Corp. (IACI)
  • MDC Holdings (MDC)
  • Merck & Co. (MRK)
  • Mueller Water Products (MWA)
  • Nasdaq Stock Market (NDAQ)
  • Pandora Media (P)
  • Polo Ralph Lauren Corp. (RL)
  • RealNetworks (RNWK)
  • Select Comfort (SCSS)
  • Shutterfly (SFLY)
  • Stericycle (SRCL)
  • Twitter (TWTR)
  • Time Warner (TWX)
  • Yelp Inc. (YELP)

____

Thursday, Feb. 6

  • Advanced Auto Parts (AAP)
  • Aetna (AET)
  • AOL Inc. (AOL)
  • Activision (ATVI)
  • Bebe Stores (BEBE)
  • Badger Meter (BMI)
  • Brooks Automation (BRKS)
  • Cummins Inc. (CMI)
  • Credit Suisse (CS)
  • Cemex SAB (CX)
  • Dunkin' Brands (DNKN)
  • Expedia (EXPE)
  • Flowers Foods (FLO)
  • General Motors (GM)
  • Imperva Inc. (IMPV)
  • iRobot Corp. (IRBT)
  • Kellogg (K)
  • Kimco Realty Corp. (KIM)
  • KKR & Co. (KKR)
  • Medidata Solutions (MDSO)
  • Measurement Specialties (MEAS)
  • Marathon Oil (MRO)
  • Monster Worldwide (MWW)
  • Noble Energy (NBL)
  • Blue Nile (NILE)
  • Nu Skin Enterprises (NUS)
  • News Corp. (NWSA)
  • NXP Semiconductors (NXPI)
  • The New York Times (NYT)
  • OpenTable (OPEN)
  • O'Reilly Automotive (ORY)
  • Philip Morris International (PM)
  • Perrigo Co. (PRGO)
  • Rofin-Sinar Technologies (RTSI)
  • Sealed Air Corp. (SEE)
  • Snap-On Inc. (SNA)
  • Sony Corp. (SNE)
  • Standard Pacific (SPF)
  • USG Corp. (USG)
  • Volvo AB
  • VeriSign (VRSN)
  • Wabash National (WNC)
  • Zynga Corp. (ZNGA)

____

Friday, Feb. 7

  • Apollo Group (APO)
  • Athenahealth (ATHN)
  • American Axle & Manufacturing (AXL)
  • Beacon Roofing Supply (BECN)
  • Carlisle Companies (CSL)
  • Flir Systems (FLIR)
  • Lions Gate Entertainment (LGF)
  • Madison Square Garden (MSG)
  • Domtar Corp. (UFS)
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At the time of publication, Versace had no positions in the stocks mentioned.

TAGS: Investing | U.S. Equity | Economic Data | Stocks

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