Little Clouds Of Optimism

1/23/2017


At this time of year, we're usually at our most optimistic. Our resolutions remain firmly intact, whether they involve losing 30 pounds or reading James Joyce's Ulysses.

Inevitably, however, other priorities emerge and pesky bad habits sneak up to undermine our best intentions. And many of us are forced to reassess our progress and compromise — maybe it's more realistic to drop 15 pounds, maybe tackling Joyce's less-dense Dubliners is good enough.

Analysts are also a notoriously optimistic bunch, and their expectations often decline as the horizon comes into sharper focus. This year shapes up to be no different.

Consensus targets project earnings-per-share growth of 12.4% for the S&P 500 Index in calendar year 2017. That's down from growth targets of 12.5% on Jan. 1, 13.9% on Oct. 1, and 14.4% on July 1, as shown in the table below.

S&P 500 PROFIT TRENDS
The consensus currently projects 12.4% higher earnings per share for the S&P 500 Index in 2017, down from the 14.4% growth targeted on July 1. Encouragingly, analyst estimates for 2017 are holding up better than they did at the same time in 2016 and 2015. The S&P 500 is currently expected to have grown profits 1.1% in 2016.
----------------------------- Estimated EPS Growth For . . . -----------------------------
Date Of Estimate
2017
(%)
2016
(%)
2015
(%)
2014
(%)
2013
(%)
2012
(%)
2011
(%)
2010
(%)
Jan. 17, current
year
12.4
6.8
6.5
10.8
10.5
9.9
14.0
30.6
Jan. 1, current year
12.5
7.6
8.1
10.8
10.9
10.0
13.4
30.6
Oct. 1, past year
13.9
10.3
12.4
11.3
11.6
13.2
14.2
26.5
July 1, past year
14.4
12.3
13.3
11.4
12.4
14.3
17.3
26.7
Change From
July 1 to Jan. 17
(2.0)
(5.5)
(6.8)
(0.6)
(1.9)
(4.4)
(3.3)
3.9
Actual EPS Growth
0.2
8.2
6.2
4.0
10.0
31.0
S&P 500 Index
Return
11.8
1.4
13.7
32.4
16.0
2.1
15.1
Source: Thomson Reuters.

However, profit estimates for the S&P 500 are holding up better than they did in each of the past two years. The growth consensus for 2017 has fallen two percentage points (2%) from July 1 to Jan. 17, versus a 5.5% decline for that same period a year ago (for calendar year 2016), a 6.8% decline two years ago (for 2015), and an average decline of 2.6% over the past eight years. Not since 2010 have estimates risen over this six-month period.

Encouragingly, several of our recommended stocks have seen their consensus profit estimates for fiscal 2017 rise in both the past 30 days and past 90 days, a group that includes Alaska Air Group ($93; ALK), Applied Materials ($34; AMAT), Biogen ($284; BIIB), CBS ($63; CBS), Citizens Financial Group ($35; CFG), CommScope ($36; COMM), J.P. Morgan Chase ($84; JPM), Lam Research ($111; LRCX), Lear ($142; LEA), and Zions Bancorp ($42; ZION). All 10 of these companies are expected to grow per-share earnings more than 3% in fiscal 2017.

Alphabet, CBS, Citizens Financial, Lam, Lear, and Zions are rated Focus List Buy and Long-Term Buy. Alaska Air, Applied Materials, Biogen, and CommScope are rated Buy and Long-Term Buy. J.P. Morgan is a Long-Term Buy.


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