Zacks Earnings Trends Highlights: Johnson & Johnson, Chevron and DuPont - Press Releases

For Immediate Release

Chicago, IL – August 31, 2010 - Zacks Research Equity Strategist, 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.

Earnings to Recover by 2011

Earnings will have fully recovered by mid-2011, and that full-year 2011 earnings will be 8.6% above full-year 2007 earnings (before the Great Recession started). That is years before we are likely to see a full recovery in the job market. Collectively the 500 firms in the S&P 500 earned $548.8 billion in “2009,” and that is going to grow to $778.5 billion this year and $895.1 billion in 2011. Translated into “EPS” for the index, earnings are expected to rise from $57.85 in 2009 to $81.81 in 2010 and $94.34 in 2011.

In other words, then, the S&P 500 is selling for 18.4 x 2009 earnings, but just 12.8x 2010 and 11.1x 2011 earnings. By historical standards that is quite cheap. Normally, when interest rates and inflation are low, P/E ratios are higher than average. Well we currently have some of the lowest rates of inflation in decades and interest rates are at near record lows. It only costs the government 2.48% to borrow for 10 years. (These numbers are based on Thursday 8/26; stocks moved sharply higher on 8/27, as did t-note yields). It is not hard to find good solid blue chip companies that are providing dividend yields of more than that, and not just a bunch of electric utilities either.

One thing is certain: the coupon on a 10 year t-note will not increase over the next 10 years. The odds of the likes of Johnson & Johnson (JNJ) 3.70%, Chevron (CVX) 3.90%, or DuPont (DD) 4.10%, increasing their dividend in the next 10 years is pretty high. Currently 159 S&P 500 stocks yield over 2.48%, and 107 of those have payout ratios of less than 60%.

Earnings that are not paid out in dividends are reinvested for future growth, or are used to buy back stock, which also lifts earnings per share. Based on this year’s earnings, the earnings yield is 7.81% and based on next year it is 9.01%. Want stock picks from Zacks Equity Research that are based on earnings estimates? Subscribe to the free "Profit from the Pros" newsletter: http://at.zacks.com/?id=7161.

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Contact: Dirk Van Dijk, CFA
Company: Zacks.com
Phone: 312-265-9211
Email: pr@zacks.com
Visit: www.zacks.com