Tale Of The Top Line

8/27/2012


Over the last four weeks, 44% of S&P 500 Index companies saw their consensus full-year profit estimates rise, while just 29% saw sales estimates increase.

Profit and sales estimates tend to move in the same direction, but profit-estimate trends command far more attention than sales estimates, for at least three reasons:

• Fewer analysts provide sales estimates than profit estimates.

• Data on sales estimates are available in fewer places.

• In general, sales estimates don’t move as sharply as profit estimates, making trends more difficult to assess. Of the S&P 500 companies that saw current-year consensus profit estimates change over the last four weeks, 59% notched a move of at least 1%, while just 46% saw such a drastic change in their sales estimates.

It makes sense to track profit estimates, but don’t ignore what’s happening to the top line. Of the 475 S&P 500 companies that have declared profits for the May, June, or July quarter, 68% topped the consensus profit estimate, above the long-term average of 62%. But only 41% beat on sales, well below the long-term norm of 63%.

Profits rise and fall for a number of reasons, some of which a company can manipulate. But for the most part, sales changes reflect two factors — demand for a company’s products and the price those products fetch. Currency fluctuations can also affect sales, but a rise in consensus sales estimates generally reflects analysts’ increased confidence in a company’s core business.

Listed below are eight recommended stocks that have seen consensus sales estimates rise for the current quarter, the next quarter, the current year, and the next year over the last four weeks. Most of the companies also enjoy profit-estimate momentum.

SCREEN OF THE MONTH: RISING SALES ESTIMATES
Curr.-Quarter
----- Sales -----
Next-Quarter
----- Sales -----
Curr.-Year
----- Sales -----
Next-Year
----- Sales -----
Company (Price; Ticker)
4-Wk.
Chg. In
Est.
(%)
Yr-
To-Yr.
Growth
(%)
4-Wk.
Chg. In
Est.
(%)
Yr-
To-Yr.
Growth
(%)
4-Wk.
Chg. In
Est.
(%)
Yr-
To-Yr.
Growth
(%)
4-Wk.
Chg. In
Est.
(%)
Yr-
To-Yr.
Growth
(%)
Aflac ($47; AFL)
1.0
7
0.9
9
0.5
15
1.6
7
Bed Bath & Beyond
($66; BBBY)
0.6
9
1.3
11
0.8
11
1.3
7
Comcast
($34; CMCSa)
0.6
11
0.3
5
0.4
11
0.3
2
Cisco Systems
($19; CSCO)
1.3
5
1.8
5
1.5
6
0.7
6
Express Scripts
($61; ESRX)
3.0
136
1.8
131
2.7
105
3.7
11
U.S. Bancorp
($33; USB)
2.6
8
2.2
0
1.6
5
1.2
2
Visa ($128; V)
1.2
12
0.6
11
0.8
13
0.4
11
Wells Fargo
($34; WFC)
0.1
9
0.1
2
0.1
6
0.1
0
Sources: Zacks, Thomson Reuters.

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