Key Points:

• Early reports (51 total) are ugly with total net income of -$3.6B so far
• 27% of reported firms have red ink
• 75% of Financials in the red and the losses are more than 3x year ago levels.
• Fourth-quarter total net income is now expected to be 29.4% below year ago
• The trends remain terrible with 2009 expectations falling 1.6% in 2 market days
• The revisions ratio is falling for both 2009 and 2010; the ratio for both years is extremely low
• Total 2009 net income is now expected to be 1.7% below 2008; in reality, it will most likely be down much more (perhaps just move the decimal point)
• P/Es based on 2009 estimates will prove to be to low as "E" plunges
• The bottom-up estimate for S&P 500 is now $72.41 in 2009, down from $73.62 last Thursday. I expect it to be less than $60.

Though I expect fourth-quarter earnings to be lousy overall, there will still be many companies that beat expectations. Some of these positive surprises will provide profitable trading opportunities.

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Total Net Income Growth

• Total net income is expected to fall 29.4% in the fourth quarter from a year ago; was -23.7% on Thursday
• Negative year-over-year growth in the fourth quarter is now expected for 6 sectors
• Financials expect high growth due to easy comps, but gush red ink in early going
• Full-year net income in 2009 is expected to be down 1.7% from 2008 levels, following a 11.6% decline in 2008
• First-quarter total net income now expected to be 15.1% below a year ago, was -13.7% on Thursday
• Energy, Materials and Discretionary all expected to be down over 40%
• Excluding Financials, total net income is down 15.5% from a year ago
• The early returns are very ugly - the 51 companies that have reported are showing red ink of $3.7B aggregate versus total earnings of $11.2B a year ago and $20.2B in the third-quarter
• Early 2010 expectations looks for 19.4% growth over 2009
• Index changes mask size of earnings decline in 2008 (Merril, Wachovia, National City and AIG are gone)

Total Net Income Growth (Reported)
Sector	Q2 '08 A	Q3 '08 A	Q4 '08 A	Q1 '09 E	2007 A	2008 A	2009 E	2010 E
Health Care	8.52%	6.14%	3.22%	-5.19%	12.27%	10.62%	-0.81%	9.10%
Cons. Stap.	11.41%	2.99%	-1.47%	-9.96%	12.21%	4.68%	4.96%	7.09%
Industrials	0.19%	2.65%	-3.66%	-24.60%	30.45%	4.71%	-12.38%	13.15%
Technology	28.54%	18.76%	-22.33%	-32.94%	19.59%	12.36%	-14.79%	21.06%
Cons. Disc.	-14.49%	31.61%	-24.91%	-20.92%	-16.04%	2.92%	-2.70%	18.18%
Materials	5.97%	-25.96%	-47.67%	-30.82%	4.97%	-9.44%	-17.74%	40.48%
Financials	-63.97%	-80.59%	-236.47%	-23.71%	-31.28%	-109.81%	-523.61%	89.70%
S&P	-33.44%	-35.58%	-132.59%	-22.04%	-15.16%	-51.57%	44.31%	38.60%

Total Net Income (Reported)
Sector	Q4 '08	Q4 '07	Q3 '08	Q3 '07
Technology	$6,630	$8,536	$7,121	$5,996
Health Care	$2,942	$2,850	$3,554	$3,349
Cons. Stap.	$1,623	$1,647	$1,528	$1,483
Industrials	$1,380	$1,433	$1,438	$1,401
Cons. Disc.	$924	$1,231	$2,874	$2,183
Materials	$393	$751	$507	$685
Financials	($17,551)	($5,216)	$3,147	$16,213
S&P	($3,660)	$11,231	$20,169	$31,310

Total Net Income Growth (Not Reported)
Sector	Q2 '08 A	Q3 '08 A	Q4 '08 E	Q1 '09 E	2007 A	2008 E	2009 E	2010 E
Financials	-45.26%	-99.31%	27.07%	15.26%	-7.10%	-50.21%	35.43%	19.99%
Utilities	4.11%	-5.99%	24.85%	-11.23%	10.62%	3.50%	4.44%	11.09%
Health Care	8.89%	7.21%	4.64%	4.04%	21.00%	7.23%	7.20%	9.82%
Cons. Stap.	1.29%	14.31%	0.64%	6.24%	6.82%	11.32%	8.32%	6.89%
Telecom	-1.11%	-15.97%	-16.30%	-7.54%	18.24%	-4.85%	-2.69%	4.65%
Technology	13.77%	3.92%	-29.59%	-15.25%	9.22%	16.16%	-7.89%	16.81%
Industrial	6.66%	0.98%	-31.93%	-4.27%	8.91%	1.64%	-10.58%	6.75%
Materials	6.23%	5.26%	-40.97%	-41.41%	11.14%	-8.70%	-32.35%	36.14%
Energy	16.25%	56.44%	-48.60%	-42.91%	9.10%	18.70%	-32.90%	22.70%
Cons. Disc.	-64.06%	-56.48%	-57.56%	-45.03%	3.89%	-49.31%	12.00%	68.99%
S&P	-6.02%	-7.80%	-22.21%	-15.05%	7.45%	-4.28%	-5.97%	16.68%

Total Net Income Growth (Combined)
Sector	Q2 '08 A	Q3 '08 A	Q4 '08 E	Q1 '09 E	2007 A	2008 E	2009 E	2010 E
Utilities	4.11%	-5.99%	24.85%	-11.23%	10.62%	3.50%	4.44%	11.09%
Health Care	8.84%	7.07%	4.47%	2.65%	19.76%	7.68%	6.10%	9.73%
Cons. Stap.	2.04%	13.45%	0.46%	4.75%	7.23%	10.78%	8.06%	6.91%
Telecom	-1.11%	-15.97%	-16.30%	-7.54%	18.01%	-4.85%	-2.69%	4.65%
Technology	17.37%	7.46%	-27.60%	-19.36%	11.74%	15.17%	-9.65%	17.82%
Industrial	6.23%	1.08%	-30.26%	-5.64%	10.08%	1.84%	-10.69%	7.16%
Materials	6.18%	2.03%	-41.82%	-39.39%	10.15%	-8.81%	-30.13%	36.92%
Energy	16.25%	56.44%	-48.60%	-42.91%	9.10%	18.70%	-32.90%	22.70%
Cons. Disc.	-58.72%	-43.68%	-54.83%	-41.86%	1.07%	-43.18%	8.87%	59.33%
Financials	-53.83%	-92.21%	-138.10%	6.39%	-18.11%	-72.98%	113.02%	39.23%
S&P	-10.97%	-12.09%	-29.37%	-15.85%	3.20%	-11.60%	-1.71%	19.40%

Scorecard and Median EPS Growth Rates

• Median EPS growth of 51 firms reporting so far is -3.6%
• The surprise ratio is 1.71 with a median surprise of 2.2%. Both are far below normal.
• Consumer Sectors are doing well on surprise front; Financials disappointing
• Remaining firms expected to be down 8.3% in 4Q
• Median EPS expected to fall in 1Q, but be up for all of 2009
• Only Health Care, Staples and Utilities expected to be positive for both quarters
• Median and surprise numbers will be volatile in early going

Keep in mind that median growth rates are inherently equally weighted, so the growth rate for smaller companies is just as significant to the results for the large companies.

Share repurchases were still very significant in the fourth quarter of last year and the first quarter of this year (the data is not out yet for the second quarter) and the reduction in share count also boosts EPS growth.

Currency translation gains will be less of a factor this quarter due to the rebound in the dollar. However, the strong overseas demand that the previously very weak dollar stimulated will still prove to be a boost to the earnings of many firms. The delay is because in the third quarter they will be shipping goods ordered previously. With both the rebound in the dollar, and the very significant economic slowdown abroad, look for the export boom to fade in 2009.

Fourth-Quarter Scorecard (Reported)
Sector	4Q '08 (A)	1Q '09 (E)	2008 (A)	2009 (E)	2010 (E)	% Reported	Median % Surprise	# Pos Surprise	# Neg Surprise	# Match
Healthcare	7.05%	-6.35%	16.62%	-2.83%	7.06%	3.70%	18.85%	2	0	0
Cons. Disc.	4.76%	-9.78%	7.51%	2.20%	6.66%	13.75%	3.90%	8	2	1
Industrial	1.59%	-8.12%	13.05%	-6.65%	9.77%	10.17%	1.17%	3	1	2
Cons. Stap.	-0.53%	-2.75%	9.04%	5.77%	7.72%	15.00%	3.27%	5	1	0
Tech	-8.57%	-38.46%	21.05%	-22.07%	9.01%	14.67%	0.00%	5	4	2
Materials	-65.25%	-42.06%	-9.65%	-14.18%	4.70%	10.34%	2.50%	2	1	0
Financial	-82.29%	-47.25%	-49.98%	59.98%	26.79%	14.81%	-174.70%	4	8	0
S&P 500	-3.64%	-13.75%	8.57%	-3.12%	9.01%	10.20%	2.17%	29	17	5

Fourth-Quarter EPS Growth (Yet-to-Report)
Sector	4Q '08 (E)	1Q '09 (E)	2008 (A)	2009 (E)	2010 (E)
Healthcare	7.23%	6.59%	12.33%	17.60%	12.04%
Cons. Stap.	2.70%	4.15%	9.69%	11.30%	9.32%
Utilities	2.20%	4.84%	3.92%	9.18%	8.74%
Telecom	0.00%	-5.75%	30.38%	-2.94%	3.92%
Industrial	-10.58%	-7.51%	18.33%	16.43%	8.00%
Tech	-12.50%	-8.95%	11.30%	18.55%	12.05%
Financial	-14.86%	-10.29%	10.58%	8.42%	14.13%
Cons. Disc.	-16.33%	-17.65%	14.58%	8.83%	7.78%
Energy	-18.18%	-27.54%	22.61%	12.83%	10.77%
Materials	-37.09%	-28.29%	23.08%	11.52%	15.58%
S&P 500	-8.28%	-3.33%	13.04%	13.27%	11.06%

The Zacks Revisions Ratio: 2009

• The revisions ratio for full S&P 500 down to 0.14, from 0.16 last week
• All sectors have at least 4 cuts per increase
• 9 sectors have at least 5 cuts for every increase
• 17.2% of all firms are seeing a mean estimate decline of more than 10%; the decline for nearly 10% of firms is more than 20%
• Ratio of firms with rising to falling mean estimates at 0.23, up from 0.16 from last week
• Total number of revisions (4-week total) down to 1,876 from 1958 (-4.2%)
• Increases down to 237 from 268 (-11.6%), cuts down to 1,639 from 1,690 (-3.0%)
• Near low of seasonal revisions activity, will pick up sharply over next few weeks

Stocks with Positive Revisions:

AFLAC Incorporated (AFL) had 4 upward revisions and 1 cut. The revisions resulted in a 1.96% increase in the company's consensus earnings estimate.

Six analysts raised their profit projections on Monsanto Company (MON). The consensus earnings estimate rose 0.81%.

Stocks with Negative Revisions (These are representative of their areas):

Bank of America (BAC) saw 8 analysts cut their forecasts. The consensus earnings esitmate fell 27.6%.

ConocoPhillips (COP) had 8 cuts and 0 increases. These revisions resulted in a 14.0% drop in the consensus earnings estimate

Intel Corporation (INTC) suffered 23 cuts. The revisions caused the consensus earning estimate to plunge by 43.6%.

To help gauge the direction of the market, we take note of what analysts are thinking. By tallying their EPS changes, we can determine our revisions ratio. This ratio simply divides the total number of positive estimate revisions by the total number of estimate cuts. Thus, a high ratio is a bullish indicator and a low ratio is bearish.

For the S&P 500 as a whole, a number below 0.80 or above 1.25 is generally significant. With smaller totals for any given sector than the S&P 500 over all, the ratio should be farther away from 1.0 to be truly significant. However, for the sake of consistency, we refer to readings above 1.25 as being in positive territory and below 0.80 as being in negative territory.

Avg. 4wk EPSChange (FY09)	Avg. 4wk EPS Change (FY09)	Revisions Ratio	Firms With FY09 EPS Increase	Firms With FY09 EPS Decrease
Consumer Disc	-2.74%	0.25	17	59
Health Care	-1.70%	0.20	13	40
Energy	-9.61%	0.19	2	37
Consumer Staple	-2.24%	0.14	15	25
Utilities	-1.62%	0.14	4	30
Telecom	-5.61%	0.13	1	8
Financial Services	-8.46%	0.10	14	65
Materials	-11.58%	0.10	5	23
Technology	-7.12%	0.09	12	55
Industrials	-4.39%	0.08	8	47
S&P 500	-5.34%	0.14	91	389

The Zacks Revisions Ratio: 2010

• The 2010 revisions ratio fell to 0.17 from 0.18
• More than 3 cuts per increase for 9 sectors and more than 4 per increase in 8 sectors
• The size of cuts horrific: 19.6% of all S&P firms with 2010 estimates down more than 10% over last 4 weeks, 8.0% down more than 20%
• Utilities the "strongest;" Industrials, Energy, Materials and Tech are all very weak
• The ratio of rising to falling mean estimates rose to 0.31 from 0.30
• The total number of revisions fells to 774 from 777, -0.4%
• Estimate increases rose to 121 from 86 (40.7%) and cuts rose to 656 from 647 (1.4%)
• Mean estimates will be affected by new estimates as much as revisions
• Sample size of 2010 revisions is thin, but starting off weak

Avg. 4wk EPSChange (FY10)	Avg. 4wk EPS Change (FY10)	Revisions Ratio	Firms With FY10 EPS Increase	Firms With FY10 EPS Decrease
Utilities	-1.14%	0.67	9	9
Health Care	-2.28%	0.28	12	32
Consumer Staples	-1.53%	0.23	9	19
Consumer Discr	-5.33%	0.22	16	50
Telecom	-0.67%	0.20	1	2
Financial Services	-7.96%	0.13	13	60
Technology	-8.61%	0.12	14	48
Materials	-8.42%	0.12	4	21
Energy	-10.67%	0.09	1	33
Industrials	-2.76%	0.05	14	30
S&P 500	-5.54%	0.17	93	304

Earnings Shares and P/Es

• P/Es are too low since earnings estimates are too high
• S&P P/E of 11.12 equates to earnings yield of 8.99% and is very attractive relative to 10 year T-note yield of 2.53%
• Health Care expected to take earnings crown from Energy in 2009
• Energy's earnings share expected to plunge to 14.9% from 21.4%
• Financials expected to almost double earnings share in 2009 from depressed 2008 levels, but more write-offs are likely
• Disappearance of losers like Merril, Wachovia and National City distort Financials' 2008 earnings share; with them include, it is under 4%.
• Consumer sectors market cap shares far above earnings shares (overvalued?)
• Earnings Shares, including historical, based on current make up of S&P 500

Earnings Shares and P/Es
Sector	2008%	2009%	2010%	Market Cap%	P/E 08	P/E 09
Technology	15.11%	14.25%	14.03%	16.51%	11.73	12.89
Health Care	14.68%	16.16%	14.89%	15.41%	11.27	10.61
Cons Staple	11.56%	12.90%	11.58%	14.77%	13.71	12.74
Energy	21.39%	14.87%	15.32%	13.36%	6.7	9.99
Industrials	12.76%	11.80%	10.50%	10.73%	9.03	10.11
Financials	7.98%	13.53%	15.82%	9.19%	12.38	7.56
Cons Disc.	4.85%	5.46%	7.30%	8.77%	19.43	17.87
Utilities	4.14%	4.48%	4.14%	4.47%	11.57	11.08
Telecom	3.95%	3.98%	3.50%	3.69%	10.04	10.32
Materials	3.58%	2.58%	2.93%	3.11%	9.31	13.42
S&P 500	100.00%	100.00%	100.00%	100.00%	10.74	11.12

Neil Malkin contributed significantly to this report.

Data in this report, unless stated otherwise, is through the close on Tuesday 1/20/2009

"MON" Free Stock Analysis: Buy? Sell? Hold?
"BAC" Free Stock Analysis: Buy? Sell? Hold?
"INTC" Free Stock Analysis: Buy? Sell? Hold?
"AFL" Free Stock Analysis: Buy? Sell? Hold?
"COP" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

Although it is a U.S. based-company, AFL derived nearly 71% of its $15.4 billion 2007 revenue from its Japanese operations (AFLAC Japan) and the rest from its domestic operations. We remain encouraged by the outlook for AFL's Japan operations, as sales through the new channels (Banks and Japan Post network) are expected to gather momentum this year.

After reviewing 2Q08 results, we are maintaining our FY08 and FY09 estimates and our Hold rating on the shares of AFL, with a six-month target price of $62.00 per share. The shares are currently trading at a price-to-book multiple of 3.60x, a 77% premium to the peer group median of 2.04x.

Read the full analyst report on AFL