The quarterly reporting season had its unofficial kickoff yesterday with Alcoa (AA) reporting 4Q12 profits. Heading into earnings season, Canaccord Genuity U.S. Portfolio Strategist Tony Dwyer would like to highlight the following points:
- 4Q12 expectations have come down. With 4% of the S&P 500 (SPX) having reported earnings, the current consensus estimate calls for SPX operating profits to be up 2.8% vs. the year-ago quarter. This estimate has come down from an expected gain of 9.9% on 10/1/2012. The sharp reduction follows the trend of recent quarters;
- Since 1Q09, the end of earnings season quarter results were higher than the beginning of reporting season estimates in every quarter. The average upside from beginning to end of EPS reporting season since 1Q09 was 6.0%, while the average upside over the past four quarters was 2.6%;
- Expect an improved trend in EPS as the year progresses. Based on recent history and forward four quarter expectations, bottom-up estimates have come down, but should reaccelerate over coming quarters. While the current FY2013 consensus calls for operating EPS of $113, Dwyer’s estimate remains $110; and
- So far so good. With 4% having reported (22/500) before Alcoa, 64% have beaten expectations, which is right in line with the historical average.
He notes that while there could be a brief period of consolidation associated with a near-term overbought condition, Dwyer’s 2013 SPX target remains 1,650. History, global monetary policy and the fundamental sweet spot of U.S. economic data argue strongly for better performance as we move through the 2013.
He remains optimistic because of further evidence of sustainable improvement in Consumer Sentiment, Employment, Credit availability, and Housing. Dwyer’s “Overweight” sectors remain Information Technology, Financials, Industrials, and to a lesser degree Consumer Discretionary given recent tax legislation.