Higher E in U.S. P/E Ratios Limit Stock Slump

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Rising earnings estimates for U.S. companies are cushioning the blow as share prices fall to lower multiples of profit, according to Edward Yardeni, president and chief investment strategist at Yardeni Research Inc.

The CHART OF THE DAY compares the projected 12-month earnings per share for the Standard & Poor’s 500 Index with a price-earnings ratio based on the estimates, according to data compiled by Bloomberg.

Analysts covering S&P 500 stocks have sent the earnings projection to records this quarter. The predicted profit two days ago was $119.55 a share, up 2.3 percent from this year’s low on April 21. The P/E ratio yesterday stood at 16.1, below a peak of 16.7 on July 3.

“As long as their optimism continues, it should offset investors’ jitters about valuation,” Yardeni wrote in a blog posting yesterday.

Smaller companies are showing a similar contrast, the New York-based strategist wrote. Projected profits for S&P’s MidCap 400 and SmallCap 600 indexes have risen to records, the posting said, while their P/Es have fallen from peaks reached in March.

Projected, or forward, earnings for the S&P 500 and other indexes are based on the average profit prediction and weight for each company. They have risen at a faster pace in recent weeks, according to Yardeni.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editors responsible for this story: Chris Nagi at chrisnagi@bloomberg.net Jeff Sutherland, Jeremy Herron

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