market perspective june 2015
TRANSCRIPT
Slides of the Month – June 2015
Experience Insight Impact
biegelwaller.com
Overview: We believe corporate earnings – specifically the level of earnings growth – is one of the most important factors in assessing the health of the equity markets and related economy. With an understanding that equity prices are ultimately dictated by earnings, we pay close attention to this trend. While S&P 500 earnings seemed sluggish in Q1, this is in part a result of the impact declining oil prices had on energy sector earnings. This factor weighed heavily on overall market earnings growth, and this month we dissect the true nature of first quarter earnings.
With almost all of the S&P 500 companies having reported Q1 2015 earnings, the results appear to be lackluster,
with negative sales growth and earnings growth of just 0.48%.
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An Earnings Update…
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• While a cursory look at the recent earnings results may be cause for concern, this earnings malaise is not broad based.
• This chart shows reported sales and earnings growth for the S&P 500 excluding the energy sector. In this case, sales growth was 2.05% and earnings grew at 7.88%.
• Excluding energy, general earnings growth appears relatively healthy.
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Excluding Energy, Q1 Earnings Growth Increased to 8.5%
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The Fundamentals for U.S. Companies in the S&P Remain Strong
Operating Profit Margins near peak levels (energy weakness has caused a 1% decline off the recent peak).
Corporate balance sheets have greatly de-levered over recent years as indicated by the Net Debt to EBITDA ratio.
Cash flow per share has backed off of all time highs, but is still significantly above historical averages.
S&P 500 total dividends have risen to new highs, yet dividend yield remains reasonable at around 2.0% current year.
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Valuation
The current S&P multiple of 18.7x is trending upward as the market continues to rebound. From a long term historical context, the S&P 500 looks to be slightly above averages, although not at prior extreme levels.
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Future Market Expectations
As the second half of the year approaches, earnings are expected to rebound from very muted first half expectations. As a result of continued negative impact of energy related companies, this transition is expected to take several quarters.
Q1 2015
Average Sales
Average Earnings
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Conclusion: Excluding energy, the results of first quarter earnings were reasonably healthy. Furthermore, fundamentals in the U.S. appear to be positive. Nonetheless, with valuations slightly above historical averages, we believe we’ll need to see earnings growth continue if the U.S. market is to advance further. In the meantime, we continue to closely monitor economic trends and the impact of a decline in oil prices.
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Market Perspectives – June 2015
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Opinions expressed in this commentary may change as conditions warrant and is for informational purposes only. Information contained herein is not intended to be personal investment advice for any specific person for any particular purpose. We utilize information sources that we believe to be reliable but cannot guarantee the accuracy of those sources. Past performance is no guarantee of future performance; investing involves risk and may result in loss of capital. Consider seeking advice from a professional before implementing any investing strategy.
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Disclaimer
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