S&P 500 Earnings. One Firm's View

This from a recent Deutsche Bank report.  US Equity Strategy - Binky Chadha, May 10, 2011. 

Outlook For Earnings After A Resilient Q1

Executive Summary with my highlights.

Raising estimates, maintaining price targets

Q1 reports again beat handily at $23.5 (7%), ahead even of our above-consensus estimate. With the market trading at 13.1x  EPS, the sustainability of earnings remains key:

    (i) despite the run up in oil & commodity costs, but in line with our call, margins recovered their Q4 drop which we had argued was seasonal;
   (ii) sales grew robustly (ex-Financials 12% yoy), continuing their run well above GDP that is typical during recoveries;
  (iii) companies raised guidance suggesting growing confidence. {Deutsche Bank} is raising EPS estimates on the view that margins will be well supported and top line growth sustained above GDP for some time:

Deutsche Bank estimates are for S&P 500 $99 in 2011 ($96), $106 in 2012 ($102).

But as earnings rise above normalized evels, {they} maintain price targets: S&P 500 1550 end 2011; 1675 end 2012.

My comment:  Deutsche Bank's year end S&P 500 targets have been some of the highest on the Street.  However consensus earnings estimates have been rising all year.  Estimates hovering around 100 on the S&P 500 makes for the possibility of a 1,400-1,450 year end price target for the S&P 500. 

There are dissenting views of this of course.  Also many prognosticators think we could see a much more significant slowdown in the 2nd half of the year than firms like Deutsche Bank are projecting.  Yet so far numbers seem to be bearing out to support their thesis.  If they are correct then the market is significantly undervalued at these levels.

Long ETFs related to the S&P 500 in client accounts.