Where do analysts see these figures in 2011? Which sectors are predicted to see upward or downward revisions to estimates? What are some potential issues in 2011 that could boost or hinder projected earnings growth rates? This Market Insight will provide a brief preview of the expected earnings growth rate, revenue growth rate, projected estimate revisions, and target price for the S&P 500 for 2011. In addition, we look at some trends that may impact earnings and sales growth in 2011.

Over the past six quarters, a much higher percentage of S&P 500 companies than average have reported earnings above analyst expectations. What is the cause of this unusually high percentage? Can we make any predictions about future EPS estimates based on this recent trend?

This note updates two previous Thomson Reuters Proprietary Research group studies — re-examining the link between guidance and earnings performance. Analyzing data for S&P 500 companies since 2001 (the first full year of Regulation FD adoption), we explore trends in the number of guidance issuers, guidance issuers versus nonguidance issuers, and differences among guidance issuers.

Based on their estimates for earnings, revenues and target prices for the S&P 500, analysts are optimistic in all three areas for 2010 relative to 2009. Analysts are predicting year-over-year growth in both earnings and revenues for 2010. And, based on their bottoms-up target price, analysts expect the price of the index to increase in 2010.

The ratio (1.6) of negative-to-positive EPS preannouncements after nine weeks of Q4 2009 for S&P 500 companies is well below the average N/P ratio (2.6) of the past four quarters, due to a sharp increase in positive EPS preannouncements from Information Technology companies. This upsurge reflects three broader IT sector trends regarding 1) revenues, 2) estimate revisions, and 3) earnings performance for Q4 2009. Read on...

Over the past year, companies have been accelerating cost savings, and this is appearing as improving earnings on the bottom line -- yet year-over-year top-line revenue growth has been in decline. If earnings growth continues to rely on cost containment, and that trend begins to fade (as we expect), then equity markets may face pressures ahead.

Analysts are calling for earnings growth in the S&P 500 to rebound to 185% in Q4 2009. While at first glance such a high growth rate appears unrealistic, there are three contributing factors that support the argument that the final growth rate for the quarter could be over 100%: 1) an easy comparison to unusually low earnings in Q4 2008, 2) a slowdown in downward revisions to estimates, and 3) the current valuation of the S&P 500 is in line with the recent historical average.

Aggregate levels of company-issued quarterly EPS guidance have fallen substantially for first-quarter 2009, indicating that executives are still unsure about the future of their businesses. Until this phenomenon changes, equity markets will have to work with less transparency, data, and confidence.