Profit Confidential (www.ProfitConfidential.com), an e-letter published by Lombardi Publishing Corporation, a 27-year-old consumer publisher that has served over one million customers in 141 countries, cautions investors that extraordinary stock buyback programs are being used to artificially prop up corporate earnings and are actually masking negative corporate earnings growth.
So far, 460 companies on the S&P 500 have reported their third-quarter corporate earnings for fiscal 2013. The overall third-quarter increase in earnings per share is up: it’s 3.5% compared to -0.9% in the same quarter of last year. (Source: “Earnings Insight,” FactSet web site, November 15, 2013; http://www.factset.com/websitefiles/PDFs/earningsinsight/earningsinsight_11.15.13.)
“My bet is that if you take out the record number of stock buyback programs the S&P 500 companies have announced this year, earnings for the third quarter of 2013 were flat,” says lead contributor and financial expert Michael Lombardi. “While per-share earnings of the S&P 500 before stock buybacks are flat year-over-year, the S&P 500 is up 30% over the same period. How can that make sense?”
Corporate earnings are just part of the equation, Lombardi explains. Only half of the S&P 500 companies (52%) were able to beat their revenues estimates, a trend that has become common over the past few quarters, where per-share earnings rise, but revenues remain flat. To make matters worse, 73 of the S&P 500 companies, or 85%, have already issued negative earnings guidance for the fourth quarter; only 12 have issued a positive outlook.
“The bottom line is that S&P 500 companies are missing on their revenues, while their per-share earnings are being propped up by stock buybacks,” Lombardi adds. “I remain skeptical of the performance of key stock indices like the S&P 500, as their weak per-share earnings growth is being achieved via artificial measures. The fundamentals of good, honest, old-fashioned revenue and earnings growth are clearly missing.”
“With that said, irrationality prevails in the stock market these days, and those who have a similar opinion to mine are rare,” he concludes. “My reading of the fundamental data says this stock market has gotten way ahead of itself, and the risks are piling up with each passing day.”
Founded in 1986, Lombardi Publishing Corporation, which has served over one million customers in 141 countries, is one of the largest consumer information publishers in the world. For more information on Lombardi Publishing Corporation and Profit Confidential, visit www.lombardipublishing.com.
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