{"id":222141,"date":"2010-01-24T11:12:56","date_gmt":"2010-01-24T16:12:56","guid":{"rendered":"http:\/\/www.businessinsider.com\/goldman-fears-of-chinese-tightening-are-overwhelming-positive-earnings-2010-1"},"modified":"2010-01-24T11:12:56","modified_gmt":"2010-01-24T16:12:56","slug":"goldman-fears-of-chinese-tightening-are-overwhelming-positive-earnings","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/222141","title":{"rendered":"Goldman: Fears Of Chinese Tightening Are Overwhelming Positive Earnings"},"content":{"rendered":"

Here are some thoughts from Goldman’s David Kostin as we head into the meatiest week of earnings, and following a sharp decline in the market.<\/p>\n

The bottom line: decent earnings reports can’t trump fears about tightening, particularly out of China.<\/p>\n

Anyway, given the fact that Bernanke is looking like a weakened lame duck, and everyone is freaking out about China, we maintin our argument<\/a> that Bernanke has already been replaced on the world stage by the head of the PBOC, Zhou Xiaochuan.<\/p>\n

——<\/p>\n

Macro headwinds trump bottom-up earnings results. The first major
week of S&P 500 earnings was overshadowed by China policy tightening,
which had been broadly anticipated but with little sense for timing, and a
surprise return of regulatory complications for the Healthcare and
Financials sectors. The combination of these two forces resulted in a
difficult week for risky assets and our sector recommendations, which favor
the globally-exposed cyclical parts of the market. Much has been written by
our Global ECS and Financials research colleagues on these two topics, and
we are in general agreement that it is too soon to change any of our core
views meaningfully. We therefore maintain our cyclical and BRICs
exposures and our Neutral recommendation on the Financials sector. In this
week’s essay, we highlight a number of the key issues that have emerged
from the 4Q 2009 S&P 500 earnings season that may have been lost in the
shuffle.<\/p>\n

To date, 92 stocks representing 26% of S&P 500 equity cap announced
4Q earnings results. EPS results have been fairly strong with 49% of
companies beating consensus estimates by at least one standard
deviation. There are more positive surprises than the average over the past
23 quarters (42%) but fewer beats than last quarter (53%).<\/p>\n

Two weeks into earnings season, heavy representation by the
Financials sector skews earnings results. Financials companies represent
32% of reported stocks. For the banks that have reported, we saw a decline
in charge-offs, non-performing loans, and NPA formation in 4Q09 as
compared to 3Q09. Pre-provision earnings results have been less
impressive. For reporting banks, pre-provision earnings have fallen 7%
quarter\/quarter on the back of weaker capital markets revenues. Net interest
margins have proven to be a source of upside for regional banks, but not
for the large cap banks. See 4Q so far: A credit-fueled beta rally (January 20,
2010) by the Goldman Sachs Banks team for more detail.<\/p>\n

Top-line surprises for this quarter are trending above average for the
first time since 2Q 2008, another positive indicator. With 16% of S&P 500
ex-Financials and Utilities stocks reported, 43% of firms beat consensus
sales expectations by one standard deviation versus the 40% average of the
past 23 quarters.  Negative surprises are lower too (7% vs. 11% average).
18 companies have positively surprised by one standard deviation or more
on both the top- and bottom-line, but there is a heavy sector bias. As in
previous quarters, nearly half of the “revenue beaters” are Information
Technology stocks.<\/p>\n

Next week is the biggest earnings week of this season. 136 stocks are
scheduled to report results accounting for 33% of S&P 500 equity
capitalization. Verizon (VZ) and AT&T (T) announce 4Q results on Tuesday
and Thursday, respectively. These two stocks account for 82% of Telecom
market cap. 52% of the Health Care sector will report next week, led by
Pharmaceuticals stocks Johnson & Johnson (JNJ) and Abbott Labs (ABT).
EPS guidance by company management shows hesitation to deviate
much from consensus expectations. 26 stocks provided guidance for FY
2010 EPS around their 4Q report.  On average, the midpoint of company
guidance is only 1% above the median consensus estimate.
Eleven companies raised or initiated dividends since the start of the year. 
Carnival Corp (CCL), which discontinued its dividend in late 2008, initiated a
$0.10 quarterly dividend.<\/p>\n

We have passed the trough of the current earnings cycle which
occurred in 3Q 2009. S&P 500 operating EPS on a trailing four-quarter
basis ended 3Q 2009 totaled $39.61, down 57% from the peak of $91
reached in 2Q 2007. For the four quarters ended 4Q 2009 we expect
operating EPS for the S&P 500 will total $57, reflecting $17 per share in 4Q
2009 or a 44% improvement on a sequential basis from the low in 3Q as
operating losses from 4Q 2008 roll off the LTM EPS aggregate.
We expect the bottom of the sales cycle will occur this quarter. We
expect S&P 500 4Q 2009 sales (excluding Financials and Utilities) will
trough on a trailing four-quarter basis, roughly 17% below the 3Q 2008 peak.
Trailing four-quarter net margins should expand on a sequential basis
for the first time since 3Q 2008. We forecast S&P 500 net margins of 7.7%
in 4Q, resulting in a net margin of 6.8% for 2009.<\/p>\n

S&P 500 earned $39.70 per share YTD through 3Q; we expect $17 per
share in 4Q 2009. Our EPS forecast includes approximately $2 per share in
provisions and write-downs for Financials. Looking forward, our top-down
2010 EPS forecast is $2 below bottom-up consensus estimates ($76 vs. $78).
Please see our 4Q 2009 earnings preview note published earlier this week
for a deeper dive on our expectations for this earnings season (see US
Equity Views: 4Q Earnings preview: earnings rise, sales trough, margins
expand, from January 19, 2010<\/p>\n

\"null\"<\/p>\n

\"null\"<\/p>\n

Join the conversation about this story »<\/a><\/p>\n

See Also:<\/b><\/p>\n