MARKET SNAPSHOT: Stock Valuations Climb As Retailers Wrap Earnings Season

By Wallace Witkowski, MarketWatch

Earnings season finishing up at highest P/E ratio since 2004

SAN FRANCISCO (MarketWatch) -- Expectations are high for home-improvement chain and retail earnings this week, with the last sizable batch of S&P 500 companies for the season reporting quarterly results, as stock valuations hit levels not seen in more than a decade.

This week's results are looking to be the last hurrah closing out the better-than-expected earnings season as forward price-to-earnings ratios reach highs last seen in 2004 and forecasts for first- and second-quarter earnings are signaling a retreat.

Target Corp. (TGT) is seen contributing the most to earnings growth in the general merchandise stores subsector this season, according to John Butters, senior earnings analyst for FactSet. Earnings for the subsector are tracking at 32.8% growth, according to FactSet data.

The second highest growth among retailers is expected from home-improvement retailers, where earnings are expected to grow by 18.1%. The big hitters in that subsector reporting this week are Home Depot Inc. (HD), the last Dow component to report this quarter, and Lowes Cos. (LOW)

While earnings for the first quarter are expected to be lousy in comparison -- a sentiment which seems to crop up every earnings season -- they'll face the added challenge trying to prop up those high P/E ratios, especially with record-high stock prices.

This past week, the Dow Jones Industrial Average (DJI) and the S&P 500 Index (SPX) both closed at record highs (http://www.marketwatch.com/story/us-stocks-futures-waver-ahead-of-greece-meeting-pmi-2015-02-20), while the Nasdaq Composite Index (RIXF) closed at its highest level in nearly 15 years.

The forward P/E ratio for the S&P 500 is 17.1, well above five-, 10-, and 15-year averages, according to Butters. At the same time, more than 80% of profit forecasts from the S&P 500 fall below the Wall Street consensus and earnings are expected to see their first quarterly year-over-year decline since the end of the recession.

Notable earnings reports this week

 
Report date     Company/Ticker (FactSet EPS / revenue estimate) 
Mon., Feb. 23   Express Scripts Holding Co.   ($1.38 / $25.73 billion) 
Tues., Feb. 24  Home Depot (89 cents / $18.68 billion)Hewlett-Packard Co.  (91 cents / $27.39 billion)Comcast Corp.  (78 cents / $17.69 billion)Macy's Inc.  ($2.39 / $9.4 billion) 
Weds., Feb. 25  Target ($1.46 / $21.72 billion)Lowe's (43 cents / $12.31 billion)Dollar Tree Inc.  ($1.14 / $2.47 billion)TJX Cos.  (90 cents / $8.26 billion)Salesforce.com Inc.  (14 cents / $1.44 billion)L Brands Inc.  ($1.80 / $4.07 billion) 
Thurs., Feb. 26 Gap Inc.  (73 cents / $4.71 billion)Kohl's Corp.  ($1.80 / $6.32 billion)Ross Stores Inc.  ($1.11 / $2.93 billion) 
Fri., Feb. 27   Southwestern Energy Co.  (51 cents / $992.1 million)NRG Energy Inc.  (loss 1 cent / $2.93 billion) 
 
 

Subscribe to WSJ: http://online.wsj.com?mod=djnwires