As the earnings season currently under way approaches its mid point, at MarketGrader we have taken a look at how companies have reported so far in an attempt to predict how the rest of the season might play out. We have used the S&P 500 as a proxy, understanding very well this leaves out small and mid caps and focuses instead on the largest companies’ reports.

As of last night 205 companies, or 41% of the S&P 500 had reported earnings for the latest quarter. In a perfect world all companies would have fiscal year ends that matched the calendar year but that not being the case, we have fit all 500 companies into a window we’ll arbitrarily call Q1 2010. What this means is that ultimately the value of the earnings reported by companies that do not track the calendar year will affect the overall earnings picture based on which reported period we include in each earnings season tally. For example, companies such as Cisco and Abercrombie & Fitch last reported results in February for the quarter ended in January. Two-thirds of their quarter thus fell in calendar 2009 and one-third in 2010. Costco and FedEx last reported in March results for the quarter ended in February, with two thirds of the reported period falling in 2010. This being said, our measure of the earnings season started on April 12^th (kicked off by Alcoa’s report) and will end on May 17^th, mostly in order to match what most of the Street follows. Our EPS analysis, though, includes results from companies that reported as early as February.

Of the 205 companies that have already reported results, 162, or 79%, have beaten their consensus estimate. And on average all companies (including negative and positive surprises) have reported earnings that have been 19.54% above their estimates. MarketGrader tracks the daily value of the S&P 500’s earnings for the quarter by combining the actual values of the companies that have already reported with the estimates of those that have yet to report, all on a market cap-weighted basis. This means that as of last night the S&P 500 is on track to report $17.81 in Q1 earnings. This number has been steadily climbing day by day as companies in the index have continued to report very strong results, quite higher than what analysts expected just weeks ago. This latest value is 17% higher than the $15.20 estimated only a month ago.

We have broken down this $17.81 “running total” for the S&P 500 into what has already been reported and what is still expected, resulting in $7.69 out of the $17.81 in yet-to-be-reported earnings per share. This allowed us to isolate the portion of the index’s overall EPS that can still be raised by upcoming results based on the season’s ongoing trend of strong reports. When we apply the average surprise of almost 20% reported so far and the 7-to-1 ratio of positive to negative surprises to what is yet to be reported, we arrive at an estimate of what the S&P 500’s components could report when all is said and done. So, assuming the current trend holds, we come up with an extra $1.19 in earnings upside for the S&P 500 on top of current estimates. When added to what has already been reported we arrive at a total of $19.00 in earnings for the year’s first quarter. This would turn out to be 25% more than the month-ago collective estimate of $15.20 and 153% higher than last year’s first quarter earnings of $7.52, underscoring the strength of the economic recovery currently under way. This would also put the S&P 500 on track to report its strongest quarter since Q2 2007 when its components collectively reported earnings of $21.88. In about three weeks’ time we’ll be able to know with certainty if S&P 500 earnings of $19.00 for the first quarter was too optimistic. Until then, let’s hope it isn’t.