Blogs / Analysis Blog

Looking to the Future: Forward Earnings Data

Palantir Finance gives us the ability to look at large amunts of data with ease, a trait which lends itself to looking at the millions of corporate earnings estimates at once.   We can use these to determine how bullish/bearish the forecasts are, when companies surprise by beating the estimates, and how the market looks as a whole.

To analyze total earnings estimates for the S&P 500 in Palantir Finance, we create an index that tracks total net expected earnings for 2009.  However, because not every company in the S&P 500 has earnings estimates in the database, we’ll first isolate those stocks that have estimates data as of January 1, 2009, which is the start date of our index.

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Now, we track these using an Index.

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The metric that we are tracking here is the product of (Shares Outstanding)*(2009 Estimates).  On every given day, this gives the sum of the total earnings estimates for 2009 of every company in the S&P 500 that has such data.

To get the earnings yield, we divide our index above by the total market capitalization of the S&P 500, which we will track with another Index:

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Earnings yield is equivalent to E/P (the inverse of PE ratio), and multiplying by the price of the S&P 500 gives us the index earnings/share for the S&P 500.  Below is a chart of the index EPS for 2009, 2010, and 2011, calculated using the above indices.

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Analysts expect the S&P’s EPS to increase from 2009 (blue) to 2010 (green), and even more so from 2010 (green) to 2011 (orange).  Also interesting is the fact that analyst estimates were decreasing until June 2009, at which point they flattened and even began to increase.   Is the economy beginning to turn around? If so, this is exactly in line with the green shoots.

The flattening can be seen by looking at the beginning-of-quarter dates for the above three estimates cross sectionally. There was a big drop in estimates between January (green) and April (orange), but a much smaller drop in estimates between April (orange) and July (red).  And given that the curves have been flat and even trended slightly upwards recently, we expect October to show even better results.

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Does this mean the recession is over?  Perhaps, although the steepness of the expected recovery is interesting.  Recent estimates expect a full-recovery of earnings by 2011 despite being down 40% from the peak.   Is such a recovery possible?

One interesting follow up is to see which sectors would have to drive the recovery.  Doing so is trivial in Palantir and requires adding a sector filter to our Index documents.

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