Posted by: Howard Silverblatt on April 12, 2011
S&P 500 issues posted a record high annual cash-flow value for 2010, at $1,145 Billion dollars, outpacing the prior record of $1,117 Billion set in 2006 (2.51% on a dollar basis, and 1.94% on an indexed per share basis). The market to cash-flow value at year-end was 9.1, down from the 9.5 at year-end 2009, and the 17.1 high of 1993 (the start of my series data for this note); the annual historical average is 11.8, with the low being 7.4 in 1994. Free cash-flow also set a record at $495 Billion, up from $302 Billion in 2009.
The Cash-Flow records join what is seen as a growing list of all time high characteristics for the S&P 500. Cash and equivalents for the S&P Industrials (Old) set another record at year-end 2010, as did book value, and deferred taxes and investment tax credits. Operating earnings and sales are expected to post new record highs in 2011. Lagging a record high is the price, which currently stands at 15.4% below the 2007 high, and 9.9% less than it was at Y2K (of course with dividends reinvested the index is up 10.7%). Given the bottom-up projected record high earnings and sales, price becomes the product of accepted multiples, which speaks to the believability and sustainability of earnings.
The record cash flow helps account for the record cash, and reinforces that big-cap companies are choosing not to spend, as compared to not being able to spend. And when combined with low interest rates, enhances the price-to-discounted cash flow, making M&A more attractive. So, the question remains - when will big-caps spend. Over the next three weeks we should know if the new depreciation schedule helped (of course, if you don’t pay taxes the write-off is meaningless). Specifically we need to review not just the sales value, but the backorders. However, it is more jobs that we need, and that means more production, and there are no credits which will inspire companies to build more products unless it believes it will sell more products. For that to happen, companies need to believe. Believe in the process, believe in the economy, believe in the fairness, and believe in the future. I’m not sure about big-caps, but for me, last week’s DC demonstration of ‘coming together’ didn’t do it.
S&P 500 2010 Statistics:
The percentage change uses the average of the four quarters to determine an annual level; all data is on an index weighted basis, with historical membership and weights.
Total assets increased 2.78%
Long term debt declined 0.86%
Shareholders equity increased 10.67%
Book value increased 13.89%, to a new record
Sales increased 5.98%
Cost of goods sold increased 3.22%
Interest expense was 6.96% lower, and 35.43% less than the 2007 high
Depreciation was flat
Capital expenditures increased 6.46%, with Q4,’10 posting a 20.14% increase
Buybacks increased 111%, but remain 50.5% off their 2007 peak
Deferred taxes and investment tax credits increased 12.27%, and has also set a record
Inventories fell 2.53%, the third year in a row, and are now 39.25% below the 2007 high
Receivables declined 1.43%, the third yearly decline
Property, plant and equipment value increased 2.96%