Zacks Earnings Trends Highlights: Gap, Nordstrom, Lowe's, Analog Devices and Texas Instruments

http://www.profit.zacks.com/
CHICAGO--(Business Wire)--
Zacks Research Director, Dirk Van Dijk says that S&P 500 earnings are continuing
to show red ink. He tracks companies on the Zacks.com web site, naming names,
while forecasting trends for the months ahead.

Key Points:

* Estimate increases outnumber cuts by 5:4 margin
* Second Quarter total net income expected to be down 36.0% year/year
* Third quarter expected to be down 23.1% year/year
* Full year 2009 expected to fall 12.3%, implies strong growth in fourth quarter

* Staples only sector expected to post positive growth in second quarter
* Six sectors expected to decline more than 30%
* Financials expected to rebound after disastrous 2008
* Median EPS growth in second quarter expected to be -19.3%
* Bottom up estimate for S&P 500 now $57.27 in 2009 versus $57.25 two weeks ago.

* S&P 500 now expected to earn $72.49 in 2010 versus $72.61 last week

Total Net Income Growth

The expectations bar for the second quarter is set very low with total net
income projected to fall 36.0%. This is even worse than the 27.3% decline posted
in the first quarter. (Note that this is different than what was posted in the
last report since the numbers always reflect the current members of the S&P 500
and there have been some noteworthy changes in the index, most importantly the
deletion of GM).

Our first peak at the third quarter shows that earnings are still expected to be
down year over year, but not by as much, dropping "only" 23.1%.

For both quarters the decline in total net income is expected to be widespread,
with only Staples eeking out a small year over year gain (+1.2%). Health Care
and Utilities are expected to hold up fairly well with only mid-single digit
declines. Every other sector is expected to post a decline of at least 25%.
Hardest hit will be 3 economically sensitive sectors: Materials, Energy and
Industrials. The first 2 are also commodity oriented, and face very tough year
ago comparisons. However, the prices of the underlying commodities have been
rebounding, so with the bar set low, they have the potential to surprise to the
upside.

Looking ahead to the third quarter, Staples, Health Care and Utilities are again
expected to post flattish results. Financials are expected to post extremely
strong year over year earnings gains, reflecting the very tough time they had a
year ago. The commodity sectors are again expected to face a tough time, but
then again with commodity prices on the rise (provided they can be sustained)
they might do better than expected.

The Zacks Revisions Ratio: 2009

* Revisions ratio for full S&P 500 up to 1.25, from 1.09
* Steady climb in the ratio, was 0.32 three months ago
* Four sectors in positive territory; Consumer Sectors lead
* Revisions ratio is now into positive territory for the S&P 500 as a whole
* Industrials continue to see estimates being cut
* Ratio of firms with rising to falling mean estimates rises to 1.05 from 0.86
* Total number of revisions (4-week total) down to 1,758 from 3,023 (-41.8%)
* Increases down to 978 from 1,576 (-37.9%); cuts down to 780 from 1,447
(-46.1%)
* Total revisions activity approaching low for the quarter

There has been a steady increase in the revisions ratio, which is now up for 14
weeks in a row. Granted it started at absolutely horrific levels, with estimates
being cut at more than 4:1 for the S&P 500 as a whole, and in individual
sectors, the cuts were often in excess of 10:1.

This week we finally broke into positive territory, which we define as at least
5 increases for every 4 cuts. We have to conclude that the green shoots are
taking hold, at least as far as analysts` projections for earnings.

While I still have my doubts about the group from a longer-term macro
perspective, at least for the short term, the analysts disagree with me about
the retailers, which have been some of the strongest performers in terms of
estimate revisions. Some of the names that have gotten more than 10 estimate
increases and no cuts are Gap (NYSE: GPS), Nordstrom (NYSE: JWN) and Lowe's
(NYSE: LOW).

The Zacks Revisions Ratio: 2010

* Overall picture for 2010 similar to that of 2009
* Revisions ratio up to 1.25 from 0.96
* Tech and Consumer sectors showing best estimate momentum for 2010
* Health Care and Utilities getting cut
* Ratio of rising to falling mean estimates rises to 1.19 from 0.80
* Total revisions activity nearing lows for the quarter
* Total number of revisions falls to 1,425 from 2,264 (-37.1%)
* Estimate increases falls to 791 from 1,109 (-28.7%), cuts fall to 634 from
1,155 (-45.1%)

Two tech stocks with particularly strong revision ratios are Analog Devices
(NYSE: ADI) and Texas Instruments (NYSE: TXN).

Earnings Shares and P/Es

* Earnings Shares, including historical, based on current make up of S&P 500
* Health Care expected to take earnings crown from Energy in 2009 and keep it in
2010
* Energy's earnings share expected to plunge to 11.1% from 23.8%
* Financials' 2009 earnings share expected to rise to 11.3% from -1.7% in 2008.
* 12-month forward S&P P/E of 14.55 equates to earnings yield of 6.87%, which is
attractive relative to 10-year T-note yield of 3.85%, but only mediocre relative
to 5.98% A-rated 10-year corporate.
* T-note rates are rising and more realistic earnings yields of near 6.34% based
on lower earnings ($60) means the spread, while still attractive, is not
overwhelming.

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Dirk Van Dijk
Director of Research
312-265-9211
Visit: www.zacks.com

Copyright Business Wire 2009