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1 EARNINGS INSIGHT John Butters, VP, Sr. Earnings Analyst Media Questions/Requests S&P 500 October 14, 2016 Key Metrics Earnings Scorecard: With 7% of the companies in the S&P 500 reporting earnings to date for Q3 2016, 76% have reported earnings above the mean estimate and 62% have reported sales above the mean estimate. Earnings Growth: For Q3 2016, the blended earnings decline for the S&P 500 is -1.8%. If the index reports a decline in earnings for Q3, it will mark the first time the index has recorded six consecutive quarters of year-overyear declines in earnings since FactSet began tracking the data in Q Earnings Revisions: On September 30, the estimated earnings decline for Q was -2.0%. Four of the eleven sectors have higher growth rates today (compared to September 30) due to upside earnings surprises, led by the Financials sector. Earnings Guidance: For Q4 2016, 4 S&P 500 companies have issued negative EPS guidance and 2 S&P 500 companies have issued positive EPS guidance. Valuation: The forward 12-month P/E ratio for the S&P 500 is This P/E ratio is based on Thursday s closing price ( ) and forward 12-month EPS estimate ($130.08). To receive this report via , please go to: To view other market stories with FactSet content, please go to: All data published in this report is available on FactSet. Please contact media_request@factset.com or FACTSET for more information. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 1

2 Topic of the Week 1: EARNINGS INSIGHT October 14, 2016 Will S&P 500 Financials Report Lower Earnings for Q4 Due to Hurricane Matthew? Last weekend, Hurricane Matthew hit the southeast coast of the United States. The damage and destruction from the hurricane will impact the earnings of many sectors and industries (i.e. retailers, restaurants, hotels, etc.) in the region in the fourth quarter. One industry that will likely see a negative impact to earnings due to the storm is the Insurance industry, as a number of companies in this industry will likely report catastrophe losses for Q due to the storm. How much will Hurricane Matthew impact earnings for the S&P 500 Insurance industry in Q4? At this point in time, no companies in the S&P 500 Insurance industry have provided estimates for the potential losses due to Hurricane Matthew. For Hurricane Sandy back in 2012, most insurance companies did not announce estimates for catastrophic losses until four to six weeks after the storm had passed. Due to Hurricane Sandy (which hit the east coast of the U.S. in October of 2012), the S&P 500 Insurance industry recorded a much larger decline in earnings for Q than expected prior to the storm. For Q4 2012, the Insurance industry reported a year-over-year decline in earnings of -31.2%, compared to an estimated earnings decline of -4.2% on September 30 (prior to the storm). Within the Insurance industry, the Property & Casualty and Multi-line Insurance sub-industries reported the largest decreases in earnings due to the storm. The Property & Casualty sub-industry reported a year-over-year decline in earnings of -45% for Q4 2012, compared to an estimated decline of -4% on September 30, The Multi-line Insurance sub-industry reported a year-over-year decline in earnings of -78% for Q4 2012, compared to an estimated decline of -16% on September 30, The Financials sector is expected to report earnings growth of 15.3% for the fourth quarter. The Insurance industry is currently projected to report the largest earnings growth (52%) of all 5 industries in the Financials sector for Q This industry is also projected to be the largest contributor to earnings growth for the entire Financials sector for the fourth quarter. At the company level, AIG is expected to be the largest contributor to earnings growth for both the Insurance industry and the entire Financials sector for Q4 2016, due to an easy comparison to a year-ago loss. The company is expected to report EPS of $1.24 for Q4 2016, compared to actual EPS of -$1.10 in Q AIG is classified as a Multi-Line Insurance company. Thus, any substantial downward revisions to EPS estimates for AIG due to catastrophic losses for Hurricane Matthew will have a significant impact on the overall earnings growth expectations for the Financials sector for Q4. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 2

3 Topic of the Week 2: Have Industry Analysts Become More Bearish on Wells Fargo? EARNINGS INSIGHT October 14, 2016 Wells Fargo has been a focus company for the market since the CFPB (Consumer Finance Protection Board) fined the company for opening fraudulent customer accounts back on September 8. The company remained a focus company during the past week. Yesterday, Chairman and CEO John Strumpf announced his retirement. Today, the company reported actual EPS of $1.03, compared to the mean EPS estimate of $1.01. From August 31 through yesterday, the price of the stock has dropped by 11.9% (to $44.75 from $50.80). Given the negative news surrounding the company over the past several weeks, have analysts become more bearish in their outlook on Wells Fargo? Have they made any significant downward revisions to their EPS estimates, targets, and ratings for the company? In terms of EPS expectations, the answer is no. Analysts have not made significant changes to EPS estimates for either fiscal year 2016 or fiscal year 2017 in recent weeks. The mean EPS estimate for FY 2016 ($4.02) is 0.2% below the mean EPS estimate for FY 2016 on August 31 ($4.03). The mean EPS estimate for FY 2017 ($4.12) is 1.5% below the mean EPS estimate on August 31 ($4.18). In terms of ratings, the answer is also no. Most of the 33 analysts covering Wells Fargo have not made any changes to their opinions in recent weeks. The overall number of Buy ratings has increased by 2 (to19 from 17) since August 31. The overall number of Hold ratings has decreased by 2 (to 9 from 11) over this same time frame. The overall number of Sell ratings has increased by 1 (to 5 from 4) during this period. At this point in time, 58% of the ratings on Wells Fargo are Buy ratings, 27% of the ratings are Hold ratings, and 15% of the ratings are Sell ratings. In terms of target prices, the answer is yes. In aggregate, analysts have lowered their mean target price for Wells Fargo by 4.7% since August 31. However, this mean target price is still 13.5% above the October 13 closing price of $ FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 3

4 Q Earnings Season: By the Numbers Overview With 7% of the companies in the S&P 500 reporting actual results for Q3 to date, more companies are reporting actual EPS (76%) and actual sales (62%) above estimates compared to the 5-year averages. In aggregate, companies are reporting earnings that are 6.1% above the estimates. This percentage is above the 5-year average (+4.4%). The blended (combines actual results for companies that have reported and estimated results for companies yet to report) year-over-year earnings decline for Q is -1.8%. If the index reports a decrease in earnings for the quarter, it will mark the first time the index has seen six consecutive quarters of year-over-year declines in earnings since FactSet began tracking this data in Q Eight sectors are reporting or are expected to report year-overyear earnings growth, led by the Utilities and Consumer Discretionary sectors. Three sectors are reporting or are projected to report a year-over-year decline in earnings, led by the Energy and Industrials sectors. The blended sales growth rate for Q is 2.6%. If the index reports growth in sales for the quarter, it will mark the first time the index has seen year-over-year growth in sales since Q (2.0%). Nine sectors are reporting or are projected to report year-over-year growth in revenues, led by the Consumer Discretionary, Health Care, and Real Estate sectors. Two sectors are reporting or are predicted to report a year-over-year decline in revenues, led by the Energy sector. Looking at future quarters, analysts currently project earnings growth to return in Q The forward 12-month P/E ratio is now 16.4, which is above the 5-year and 10-year averages. During the upcoming week, 91 S&P 500 companies (including 11 Dow components) are scheduled to report results for the third quarter. More Companies Beating EPS and Sales Estimates To Date than Average Percentage of Companies Beating EPS Estimates (76%) is Above 5-Year Average Overall, 7% of the companies in the S&P 500 have reported earnings to date for the third quarter. Of these companies, 76% have reported actual EPS above the mean EPS estimate, 3% have reported actual EPS equal to the mean EPS estimate, and 21% have reported actual EPS below the mean EPS estimate. The percentage of companies reporting EPS above the mean EPS estimate is above the 1-year (70%) average and above the 5-year (67%) average. At the sector level, the Consumer Staples (100%), Information Technology (86%), and Financials (80%) sectors have the highest percentages of companies reporting earnings above estimates, while the Materials (50%) sector has the lowest percentage of companies reporting earnings above estimates. Earnings Surprise Percentage (+6.1%) is Above 5-Year Average In aggregate, companies are reporting earnings that are 6.1% above expectations. This surprise percentage is above the 1-year (+4.8%) average and above the 5-year (+4.4%) average. The Materials (+37.0%) sector is reporting the largest upside aggregate difference between actual earnings and estimated earnings. In this sector, Monsanto ($0.07 vs. -$0.05) has reported actual results above the mean EPS estimate by the widest margin. Percentage of Companies Beating Revenue Estimates (62%) is Above 5-Year Average In terms of revenues, 62% of companies have reported actual sales above estimated sales and 38% have reported actual sales below estimated sales. The percentage of companies reporting sales above estimates is above the 1- year average (50%) and above the 5-year average (54%). At the sector level, the Information Technology (86%) and Financials (80%) sectors have the highest percentages of companies reporting revenues above estimates, while the Consumer Discretionary (38%) sector has the lowest percentage of companies reporting revenue above estimates. Revenue Surprise Percentage (+1.1%) is Above 5-Year Average In aggregate, companies are reporting sales that are 1.1% above expectations. This surprise percentage is above the 1-year (0.0%) average and above the 5-year (+0.6%) average. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 4

5 The Financials (+2.9%) sector is reporting the largest upside aggregate difference between actual sales and estimated sales. Slight Decrease in Blended Earnings Decline This Week Due to Financials Slight Decrease in Blended Earnings Decline This Week Due to Financials The blended earnings decline for the third quarter is -1.8% this week, which is slightly smaller than the blended earnings decline of -2.1% last week. Upside earnings surprises reported by companies in the Financials sector were mainly responsible for the small decrease in the overall earnings decline for the index during the past week. In the Financials sector, the upside earnings surprises reported by JPMorgan Chase ($1.58 vs. $1.39), Citigroup ($1.24 vs. $1.15), and Wells Fargo ($1.03 vs. $1.01) were the largest contributors to the small decrease in the overall earnings decline for the index during the past week. As a result, the blended earnings growth rate for the Financials sector increased to 3.4% from 0.9% during this period. Financial Sector Has Seen Largest Increase in Earnings since September 30 The blended earnings decline for Q of -1.8% is slightly smaller than the estimate of -2.0% at the end of the third quarter (September 30). Four sectors have recorded an increase in earnings growth since the end of the quarter due to upside earnings surprises and upward revisions to earnings estimates, led by the Financials (to 3.4% from 0.6%) sector. Seven sectors have recorded a decrease in earnings growth during this time due to downside earnings surprises and downward revisions to estimates, led by the Energy (to -72.5% from -67.2%) sector. Earnings Growth: Sixth Consecutive Quarter of Year-Over-Year Earnings Declines (-1.8%) The blended (combines actual results for companies that have reported and estimated results for companies yet to report) earnings decline for Q is -1.8%. If the index reports a decrease in earnings for the quarter, it will mark the first time the index has seen six consecutive quarters of year-over-year declines in earnings since FactSet began tracking this data in Q Eight sectors are reporting or are projected to report year-over-year growth in earnings, led by the Utilities and Consumer Discretionary sectors. Three sectors are projected to report or are reporting a yearover-year decline in earnings, led by the Energy and Industrials sectors. Utilities: NRG Energy and PG&E Corporation Lead Growth The Utilities sector is expected to report the highest earnings growth of all eleven sectors at 6.1%. At the company level, NRG Energy and PG&E Corporation are projected to be the largest contributors to earnings growth for the sector. The mean EPS estimate for NRG Energy for Q is $0.71, compared to year-ago EPS of $0.19. The mean EPS estimate for PG&E Corporation for Q is $1.13, compared to year-ago EPS of $0.84. If these two companies are excluded, the estimated earnings growth rate for the Utilities sector would fall to 3.2% from 6.1%. Consumer Discretionary: Auto Parts, Internet Retail, and Home Goods Lead Growth The Consumer Discretionary sector is reporting the second highest earnings growth of all eleven sectors at 4.8%. Nine of the 12 industries in this sector are reporting or are projected to report earnings growth for the quarter, led by the Auto Components (68%), Internet & Direct Marketing Retail (34%), and Household Durables (25%) industries. On the other hand, the Automobiles (-25%) industry is projected to report the largest decline in earnings for the quarter. Energy: Largest Contributor to Earnings Decline in the S&P 500 The Energy sector is expected to report the largest year-over-year decline in earnings of all eleven sectors at -72.5%. Five of the six sub-industries in this sector are projected to report a year-over-year decrease in earnings: Oil & Gas Exploration & Production (N/A), Oil & Gas Equipment & Services (-99%), Oil & Gas Drilling (-97%), Oil & Gas Refining & Marketing (-67%), and Integrated Oil & Gas (-53%). The Oil & Gas Storage & Transportation (4%) subindustry is the only sub-industry in the sector predicted to report earnings growth for the quarter. This sector is also projected to be the largest contributor to the earnings decline for the S&P 500 as a whole. If the Energy sector is excluded, the estimated earnings growth rate for the S&P 500 would improve to 1.8% from -1.8%. Industrials: Weakness in Airlines The Industrials sector is reporting the second largest year-over-year decline in earnings of all eleven sectors at -8.1%. At the industry level, six of the 12 industries in the sector are reporting or are predicted to reported a yearover-year decrease in earnings, led by the Airlines (-32%) industry. This industry is also expected to be the largest contributor to the earnings decline for the sector. If the Airlines industry is excluded, the blended earnings decline for the sector falls to -2.3% from -8.1%. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 5

6 Revenues: First Quarter of Year-Over-Year Revenue Growth (2.6%) Since Q The blended revenue growth rate for Q is 2.6%. If the index reports growth in sales for the quarter, it will mark the first time the index has seen year-over-year growth in sales since Q (2.0%). Nine sectors are reporting or are predicted to report year-over-year growth in revenues, led by the Consumer Discretionary, Health Care, and Real Estate sectors. Two sectors are reporting or are projected to reporting a year-over-year decline in revenues, led by the Energy sector. Consumer Discretionary: Auto Parts, Internet Retail, and Home Goods Lead Growth The Consumer Discretionary sector is reporting the highest revenue growth of all eleven sectors at 8.8%. Nine of the 12 industries in this sector are reporting or are projected to report sales growth for the quarter, led by the Auto Components (63%), Internet & Direct Marketing Retail (28%), and Household Durables (21%) industries. On the other hand, the Automobiles (-3%) and Multiline Retail (-2%) industries are projected to report the largest declines in sales for the quarter. Health Care: Broad-Based Growth The Health Care sector is expected to report the second highest revenue growth of all eleven sectors at 7.0%. All six industries in this sector are predicted to report sales growth for the quarter, led by the Health Care Technology (10%) and Health Care Providers & Services (8%) industries. Real Estate: Real Estate Services & Specialized REITs Lead Growth The Real Estate sector is expected to report the third highest revenue growth of all eleven sectors at 6.6%. Five of the eight sub-industries in this sector are projected to report sales growth for the quarter, led by the Real Estate Services (22%) and Specialized REITs (12%) sub-industries. On the other hand, the Office REITs (-5%) sub-industry is expected to report the largest decline in sales for the quarter. Energy: Largest Detractor to Revenue Growth in the S&P 500 The Energy sector is expected to report the largest year-over-year decrease in sales for the quarter at -13.0%. Five of the six sub-industries in this sector are predicted to report a year-over-year decrease in revenues: Oil & Gas Drilling (-45%), Oil & Gas Equipment & Services (-28%), Oil & Gas Exploration & Production (-18%), Oil & Gas Refining & Marketing (-16%), and Integrated Oil & Gas (-7%). The Oil & Gas Storage & Transportation (4%) sub-industry is the only sub-industry in the sector predicted to report earnings growth for the quarter. This sector is also projected to be the largest detractor to sales growth for the S&P 500 as a whole. If the Energy sector is excluded, the estimated revenue growth rate for the S&P 500 would improve to 4.2% from 2.6%. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 6

7 Looking Ahead: Forward Estimates and Valuation Earnings Growth Not Expected to Return Until Q After several quarters of year-over-year declines, analysts currently expect revenue growth to return in Q and earnings growth to return in Q In terms of earnings, the growth rates for Q and Q are -1.8% and 5.6%. In terms of revenues, the growth rates for Q and Q are 2.6% and 5.3%. For all of 2016, analysts are projecting earnings to decline slightly year-over-year (-0.1%), but revenues to increase year-over-year (2.2%). For all of 2017, analysts are projecting earnings growth of 12.8% and revenue growth of 6.0%. Guidance: Negative EPS Guidance (67%) for Q4 Below Average At this point in time, 6 companies in the index have issued EPS guidance for Q Of these 6 companies, 4 have issued negative EPS guidance and 2 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 67% (4 out of 6), which is below the 5-year average of 74%. Valuation: Forward P/E Ratio is 16.4, above the 10-Year Average (14.3) The forward 12-month P/E ratio is This P/E ratio is based on Thursday s closing price ( ) and forward 12- month EPS estimate ($130.08). The forward 12-month P/E ratio of 16.4 is above the 5-year average of 14.9, and above the 10-year average of However, it is below the forward 12-month P/E ratio of 16.8 recorded at the start of the fourth quarter (September 30). Since the start of the fourth quarter, the price of the index has decreased by 1.6%, while the forward 12-month EPS estimate has increased by 0.3%. At the sector level, the Energy (55.5) sector has the highest forward 12-month P/E ratio, while the Financials (12.1) sector has the lowest forward 12-month P/E ratio. Eight sectors have forward 12-month P/E ratios that are above their 10-year averages, led by the Energy (55.5 vs. 17.2) sector. Two sectors forward 12-month P/E ratios that are below the 10-year averages, led by the Telecom Services (13.2 vs. 14.6) sector. Historical averages are not available for the Real Estate sector. Companies Reporting Next Week: 91 During the upcoming week, 91 S&P 500 companies (including 11 Dow components) are scheduled to report results for the third quarter. FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 7

8 Q3 2016: Scorecard FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 8

9 Q3 2016: Scorecard FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 9

10 Q3 2016: Scorecard FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 10

11 Q3 2016: Projected EPS Surprises (Sharp Estimates) FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 11

12 Q3 2016: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 12

13 Q4 2016: EPS Guidance EARNINGS INSIGHT October 14, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 13

14 Q4 2016: EPS Revisions EARNINGS INSIGHT October 14, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 14

15 Q4 2016: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 15

16 CY 2016: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 16

17 CY 2017: Growth FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 17

18 Geographic Revenue Exposure EARNINGS INSIGHT October 14, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 18

19 Bottom-Up EPS Estimates: Revisions EARNINGS INSIGHT October 14, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 19

20 Bottom-Up EPS: Current & Historical EARNINGS INSIGHT October 14, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 20

21 Bottom-Up SPS: Current & Historical EARNINGS INSIGHT October 14, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 21

22 Net Margins: Current & Historical EARNINGS INSIGHT October 14, 2016 FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 22

23 Forward 12M Price / Earnings Ratio: Sector Level FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 23

24 Forward 12M Price / Earnings Ratio: Long-Term Averages FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 24

25 Trailing 12M Price / Earnings Ratio: Long-Term Averages FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 25

26 Important Notice The information contained in this report is provided as is and all representations, warranties, terms and conditions, oral or written, express or implied (by common law, statute or otherwise), in relation to the information are hereby excluded and disclaimed to the fullest extent permitted by law. In particular, FactSet, its affiliates and its suppliers disclaim implied warranties of merchantability and fitness for a particular purpose and make no warranty of accuracy, completeness or reliability of the information. This report is for informational purposes and does not constitute a solicitation or an offer to buy or sell any securities mentioned within it. The information in this report is not investment advice. FactSet, its affiliates and its suppliers assume no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this report. About FactSet FactSet is a leading provider of integrated financial information and analytical applications. More than 63,000 users stay ahead of global market trends, access extensive company and industry intelligence, and monitor performance with FactSet s desktop analytics, mobile applications, and comprehensive data feeds. The Company has been included in FORTUNE's Top 100 Best Companies to Work For, the United Kingdom s Great Places to Work and France s Best Workplaces. FactSet is listed on the New York Stock Exchange and NASDAQ (NYSE:FDS) (NASDAQ:FDS). Learn more at and follow us on Twitter: FactSet.com Copyright 2016 FactSet Research Systems Inc. All rights reserved. 26