This report updates the trailing-twelve-months (TTM) Economic Earnings for the NC 2000[1] and all sectors as of 5/16/24.
Economic earnings are rising for some sectors and falling in others, and the magnitude of change varies by a wide margin. Trailing TTM Economic Earnings in 1Q24 were higher than 4Q23 TTM levels for six of eleven sectors.
This report is an abridged and free version of All Cap Index & Sectors: Economic Earnings Update For 1Q24, one of our quarterly reports on fundamental market and sector trends. The full reports are available to our Institutional members or can be purchased below.
The full version of this report analyzes the economic earnings[2] (which adjust for unusual items on both the income statement and balance sheet) and GAAP earnings for the NC 2000 and its sectors (last quarter’s analysis is here).
Economic earnings provide a more accurate measure of the true underlying cash flows of businesses than GAAP earnings. Reports on the drivers of economic earnings are here.
This report leverages our cutting-edge Robo-Analyst technology to deliver proven-superior[3] fundamental research and support more cost-effective fulfillment of the fiduciary duty of care.
Economic Earnings Update For 1Q24
See Figure 1 in the full version of our report for the chart of Economic Earnings vs. GAAP earnings for the NC 2000 and each of its eleven sectors from December 1998 through 1Q24.
The NC 2000’s 1Q24 Economic Earnings are the continuation of a trend we foresaw in a prior report. Indeed, a major headwind facing Economic Earnings is a rising weighted average cost of capital (WACC). Investors can protect themselves by paying closer attention to Economic Earnings, which account for the effects of changes to WACC.
Key Details on Select NC 2000 Sectors
The Financials sector saw the largest QoQ improvement in TTM Economic Earnings.
Below, we highlight the Utilities sector, which has the lowest TTM Economic Earnings.
Sample Sector Analysis[4]: Utilities
Figure 1 shows Economic Earnings for the Utilities sector improved from -$49.1 billion in 4Q23 to -$49.0 billion in 1Q24, while GAAP earnings rose from $57.2 billion to $59.4 billion over the same time.
Figure 1: Utilities Economic Earnings Vs. GAAP: 4Q98 – 1Q24
Sources: New Constructs, LLC and company filings.
Our economic earnings analysis is based on aggregated TTM data for the sector constituents in each measurement period.
The May 16, 2024 period incorporates the financial data from calendar 1Q24 10-Qs, as this is the earliest date for which all of the calendar 1Q24 10-Qs for the NC 2000 constituents were available.
This article was originally published on June 13, 2024.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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Appendix: Calculation Methodology
We derive the economic earnings and GAAP earnings metrics above by summing the Trailing Twelve-Month individual NC 2000 constituent values for economic earnings and GAAP earnings in each sector for each measurement period. We call this approach the “Aggregate” methodology.
The Aggregate methodology provides a straightforward look at the entire sector, regardless of market cap or index weighting and matches how S&P Global (SPGI) calculates metrics for the S&P 500.
[1] The NC 2000 consists of the largest 2000 U.S. companies by market cap in our coverage. Constituents are updated on a quarterly basis (March 31, June 30, September 30, and December 31). We exclude companies that report under IFRS and non-U.S. ADR companies.
[2] This report is based on the latest audited financial data available, which is the 1Q24 10-Q in most cases. Price data as of 5/16/24. QoQ analysis is based on the change since lats quarter.
[3] Our research utilizes our more of reliable fundamental data, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and published in The Journal of Financial Economics.
[4] The full version of this report provides analysis for all eleven sectors.