Sector Analysis: How Will Stocks Fare During the Q1 2017 Earnings Reporting Season?
Sam Subramanian PhD, MBA
The first quarter earnings reporting season kicks into high gear in about two weeks.
Major banks Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) step to the earnings podium on Thursday, April 13.
Analysts are relatively upbeat on their expectations for earnings growth in the first quarter.
According to FactSet Research, analysts expect S&P 500 companies in aggregate to grow first quarter EPS 9.1% from the year-ago period, compared to the 5.0% growth recorded in the last quarter of 2016. They forecast first-quarter earnings in total to rise to a record $29.56 a share.
If the forecasted 9.1% growth in EPS is actually achieved, the first quarter will mark the highest year-over-year growth in EPS after the 11.6% growth achieved in the fourth quarter of 2011.
Sector Analysis: What's driving growth this quarter?
Growth in first quarter earnings is expected in 8 of the 11 sectors.
Double-digit growth is expected in financial, information technology, and materials sectors. Specific companies expected to drive significant growth include American International Group (AIG) and Goldman Sachs (GS) in financials, Facebook (FB) and Broadcom (AVGO) in information technology, and Nucor (NUE) in materials.
The financial sector is the only one where earnings estimates have risen since the last quarter ended on December 31, 2016. Rising interest rates in 2017 have prompted analysts to up EPS estimates here.
Sector Analysis: Earnings Growth Outlook by Sector in Q1 2017. FactSet Research data as of March 24, 2017.
The energy sector is, however, expected to be the largest contributor to S&P 500's aggregate earnings growth.
During the first quarter of 2016, energy companies collectively lost $1.5 billion as the price of oil slid to an average of $33.96 a barrel for the quarter.
A 50% surge in the price of oil to an average of $52.07 in the first quarter of 2017 has revived the fortunes of energy companies.
Energy companies are forecasted to collectively earn $7.7 billion this quarter.
The energy sector is however not shown in the above chart since aggregate losses in the year-ago quarter render the estimated growth rate meaningless.
At the other end of the spectrum, earnings are forecasted to decline year-over-year in consumer discretionary, telecom service, and industrial sectors. Specific companies weighing on these sectors include Ford (F), Verizon (VZ), and General Electric (GE), respectively.
What's Ahead for Stocks
Expectations for EPS growth in 2017 are high. Analysts expect S&P 500 company EPS to grow year-over-year in each of the quarters after the first one resulting in 9.9% EPS growth for the whole year.
Stocks are now in the ninth year of the bull market that began in March of 2009. Following this rise, the S&P 500 members on average trade at 17.5X-forward EPS, nearly 26% above the 13.9 average for the past 10 years.
Almost all sectors are overvalued from a historical forward P/E perspective. With the exception of telecom services, the forward P/E ratio of stocks in each sector exceeds the corresponding 10-year average.
Optimism on President Trump delivering his election promises of lowering taxes, easing regulations, and increasing infrastructure spending is fading after the Republicans failed to push the health care reform bill through.
With risks of a correction rising, investors will likely look to first quarter earnings reports to affirm their confidence in companies exceeding, or at a minimum meeting, 2017 EPS growth expectations.
Companies that do not offer upwardly revised EPS guidance are at risk of seeing their stock prices fall.
This at least appears to be a pattern in S&P 500 companies reporting EPS for fiscal quarters ending in February.
In the technology sector, investors bid up Oracle (ORCL) and Micron Technology (MU) shares. Both of them beat analysts' EPS expectations and provided upbeat comments, encouraging analysts to raise their full-year EPS estimates.
In contrast, shares of consulting services provider Accenture (ACN), as well as consumer goods makers General Mills (GIS) and Nike (NKE) suffered even after the companies beat analysts' EPS forecasts. Nike's worldwide future orders dropped to trigger concerns of EPS falling short in the quarters ahead. Comments from Accenture and General Mills on their future did not compel analysts to raise EPS estimates.
AlphaProfit's Investment Selection Process
You need a time-tested, proven investing strategy to protect and grow your money in this challenging market.
To increase the odds of selecting winning sector ETFs & selecting winning Fidelity Select Funds, AlphaProfit evaluates sectors on valuation, momentum, and news quality with EPS growth being one of the news quality metrics.
This multi-factor analysis ensures investments in the chosen sector are attractively priced and have the catalysts needed to sustain growth in future.
Fully 75% of investments selected by AlphaProfit have made money ... and this includes results during the 2008 financial crisis and the dot-com bust at the turn of the millenium.
The high percentage of winning investment selections translates into lower risk and higher return for AlphaProfit Premium Service investment newsletter subscribers.
To capture evolving profit opportunities, AlphaProfit will reconstitute its Fidelity and ETF model portfolios on Friday, March 31.
AlphaProfit's Free Investment Newsletter MoneyMatters
Compounding at an annual rate of 18.8%, a dollar invested in AlphaProfit's selection process in 1994 is now worth $55.12 while a comparable investment in the S&P 500 is worth just $8.02.
Consistent selection of winning mutual fund picks has enabled AlphaProfit's Premium Service to rank #1 in Hulbert Financial's investment newsletter rankings multiple times.
Sign up for AlphaProfit's FREE investment newsletter MoneyMatters and get two special reports:
Five Smart Ways of Using Fidelity Select Funds and Avoid Three Common Mistakes ETF Investors Make.
Sector ETFs: Invest in the Best Sector ETF Consistently
Fidelity Select Funds: Choose the Best Fidelity Sector Fund Consistently
AlphaProfit Free and Premium Investment Newsletters
Protect & grow your wealth with
investment recommendations from free e-letter
By Hulbert #1 rank winner Dr. Sam Subramanian
'Incisive Insights, Impressive Results' - Jim Woodruff
About AlphaProfit MoneyMatters and AlphaProfit
AlphaProfit MoneyMatters is a free e-letter distributed to registered users of AlphaProfit's website. The e-letter analyzes the economy, markets, and sectors and provides money-making insights on stocks, exchange-traded funds, and mutual funds.
AlphaProfit MoneyMatters is edited by Dr. Sam Subramanian acclaimed for his financial acumen and analytical skills.
AlphaProfit Investments, LLC is an independent investment research firm based in Sugar Land, TX. AlphaProfit publishes the AlphaProfit Sector
Investor's Newsletter, edited by Dr. Sam Subramanian. Leveraging sector funds, the Newsletter provides high-performance model portfolios
with Fidelity funds and exchange-traded funds.
It also includes actionable stock recommendations. This newsletter features among MarketWatch's top 10 investment newsletters and has won
the coveted #1 rank from Hulbert Financial
Copyright Policy and Fair Use Guide
You are welcome to quote a short excerpt of the article not exceeding 100 words with attribution in the form of a hyperlink to the article's
full URL or https://www.alphaprofit.com. If you wish to republish the article in full on
your website, blog, or other media, you must obtain permission.
AlphaProfit MoneyMatters™ is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual advice on investing. Factual material is obtained from sources believed
to be reliable and is provided without warranties of any kind. AlphaProfit Investments, LLC is not responsible for any errors or omissions. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from any
of the investment companies, brokers or entities connected with the securities mentioned herein. Please review our Terms and Conditions of Use and Subscriber Agreement which is available on our website at
www.alphaprofit.com; they govern your relationship with AlphaProfit Investments, LLC, including, but not by way of limitation, use of the AlphaProfit MoneyMatters.
This page is best viewed in 1024 by 768 pixels screen resolution or higher.
Copyright © 2017 AlphaProfit Investments, LLC. All rights reserved.