Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Utilities Earnings Growth Expected to Come to a Halt


It's time to take a look at second-half earnings expectations for the S&P 500.

This article was originally posted on the Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO+.

FactSet Research Systems (NYSE:FDS) just issued its latest S&P 500 (INDEXSP:.INX) earnings summary, so it's time to take a look at where earnings expectations currently stand.

Here's a recap of Q2 expectations:

  • Estimated earnings growth for Q2 is now 5.2%, down from 6.8% on March 31.
  • Estimated revenue growth is 2.8%. down from 3.5%.
  • For Q2, 84 companies issued negative guidance, 27 positive.
  • The materials sector has had the biggest decline in earnings growth expectations (10.5% from 17.7%) due to weakness in metals/mining.
  • The consumer discretionary sector has had a substantial decline in growth expectations, to 9.1% from 13.3%.
  • We are seeing very small cuts to Q2 earnings expectations relative to recent years, which likely reflects people looking for a rebound following the weather-impacted first quarter.
  • Health care shows the highest expected revenue growth due to biotech exposure.
Here are second-half expectations:

  • Estimated earnings growth for the second half is 9.9%, up from 3.7% in the first half (blending actual results with estimates for Q2).
  • Nine of 10 sectors are expected to show an acceleration over the first half.
  • Utilities is the lone sector expected to see slower earnings growth, with a decline to 0.2% from 11.8% in the first half.
  • Financial earnings growth is expected to bounce to 15.5% from 2.7% in the first half. (Insurance earnings were very weak early in the year.)
In this table, I compiled year-to-date return data by sector, and compared it to expected growth rates for the second half versus the first.

Year-to-date, utilities has been the No. 1 sector in terms of price performance (+16.6%) while consumer discretionary has been the worst by far (flat).

However, utilities earnings growth is expected to collapse and show the lowest earnings growth (just +0.2%) in the second half.

If the bar is low enough for the discretionary sector and key companies beat for the second quarter -- Comcast (NASDAQ:CMCSA), Disney (NYSE:DIS) and (NASDAQ:AMZN) are the three biggest names -- we could see a rotation away from utilities ahead of that expected second-half slowdown.

Investors need a reason to flee the safety, and earnings acceleration in growth-oriented sectors could be the ticket.

Twitter: @MichaelComeau

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos