Top Sectors for the Third Quarter Earnings Season
Sam Subramanian PhD, MBA
The third quarter earnings reporting season should pick up steam in the coming weeks.
Analysts expect a positive reporting season.
According to FactSet, S&P 500 companies would grow their earnings 4.2% year-over-year in the third quarter. Revenues would grow 5.0%.
S&P 500 companies grew their earnings by 13.9% and 10.3%, respectively in the first and second quarters of this year.
Admittedly, EPS growth expectations for the third quarter are subdued compared to the first and second quarter tallies. Yet, third quarter EPS is expected to increase year-over-year and solidify the growth trend.
Analysts expect profit growth to benefit from favorable foreign exchange translation, growth in Asia, and the positive impact of acquisitions.
Third quarter earnings are projected to decline year-over-year in three of the eleven sectors. They are consumer discretionary, telecom services, and utilities.
Earnings growth in the third quarter is expected to be driven by energy, information technology, and real estate sectors.
S&P 500 quarterly earnings are forecasted to rise 4.2% in the third quarter with energy sector earnings contributing the most to growth.
The energy sector is predicted to show the highest year-over-year earnings growth. The unusually high 108.4% growth is largely due to abnormally low earnings in the year-ago quarter. The energy sector's total earnings are projected to rise to $9.5 billion in this year's third quarter from $4.6 billion a year-ago.
Sector heavyweights, ExxonMobil (XOM), Chevron (CVX), Schlumberger (SLB), and Halliburton (HAL) are all expected to show healthy year-over-year increases in third-quarter earnings with ExxonMobil's 31.7% growth being the slowest.
The information technology sector is expected to grow third-quarter earnings by 8.5%, making it the second highest of all sectors. The semiconductor & semiconductor equipment companies are forecasted to spearhead growth here.
Micron Technology (MU) is expected to be the largest contributor to this sector's earnings growth. Micron is expected to earn $1.82 a share in this year's third quarter, reversing a loss of $0.05 a share in the year-ago period.
Among the top companies in the information technology sector, Apple (AAPL) and Facebook (FB) are predicted to post double-digit EPS growth. Notably, Alphabet's EPS is expected to drop 8.2%.
The real estate sector is expected to report the third highest growth year-over-year. The real estate sector uses funds from operations (FFO) as its profit measure as opposed to earnings. The sector's FFO is expected to grow 7.0% from the year-ago quarter.
The sector's profit growth is expected to be driven by real estate investment trusts serving telecom service and technology companies. Cellular tower operator American Tower (AMT) and Equinix (EQIX), a provider of data center services to cloud computing companies, are expected to grow FFO over 40.0%.
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