Bloomberg News

UBS Raises S&P 500 ‘11 Earnings-Per-Share Estimate to $96.64

October 12, 2011

(Adds analysts’ estimates in fourth paragraph, Goldman Sachs’ comments on peak third-quarter earnings in sixth.)

Oct. 12 (Bloomberg) -- UBS AG raised its 2011 earnings forecast for companies in the the Standard & Poor’s 500 Index, citing stronger-than-forecast U.S. economic data.

Thomas Doerflinger, a New York-based strategist for Switzerland’s biggest bank, raised his profit estimate for the benchmark U.S. equity index to $96.64 a share from $95, saying earnings in the second half of the year will reflect higher economic growth expectations after U.S. manufacturing, auto sales, construction and payrolls data beat forecasts.

“Profits are weakening but are stronger than investors, ourselves included, feared,” Doerflinger wrote in a note dated today. A September UBS report showed “results of ‘early reporters’ indicated that third-quarter profits were soft but were not collapsing,” he wrote.

Concern European officials will fail to contain the region’s sovereign debt crisis and the global economy will slip back into a recession has spurred analysts who cover stocks in the S&P 500 to cut their profit forecasts for the year. The average estimate for 2011 earnings has fallen 0.3 percent to $100.03 from its high on Sept. 1. Alcoa Inc., the largest U.S. aluminum producer, reported earnings yesterday that trailed estimates, becoming the first company in the Dow Jones Industrial Average to report quarterly results.

The S&P 500 has fallen as much as 19 percent from its high in April. The benchmark measure for American equities rose 1.2 percent to 1,210.12 at 10:17 a.m. New York time.

Weaker ‘Tone’

While Doerflinger raised his third-quarter earnings-per share-estimate to $24.50 from $23.50 and for the fourth quarter to $24.50 from $23.84, he also noted the “tone” of the current earnings reporting season may be much weaker than in the past six quarters.

“The weakening global economy and risk of major negative surprises from Wall Street firms keep us cautious,” Doerflinger said. “Potential negative wild cards” for future quarters are weaker commodity prices and an overhang of losses that are mostly mortgage-related at banks, he said.

Goldman Sachs Group Inc. predicted combined profit by companies in the S&P 500 will rise to $25 a share in the third quarter, David Kostin, the New York-based equity strategist, wrote in a note dated today. That’s a 16 percent increase from a year earlier and “a modest upside surprise to consensus estimates,” Kostin wrote.

After profits in the second quarter exceeded estimates, analysts have been cutting forecasts for the remaining two quarters of the year, according to Goldman. This allows for a “low hurdle” in the third-quarter earnings season, the firm said. Technology stocks are the most likely to beat analysts’ projections, Kostin said.

“Strong micro data from earnings results could offset poor macro data,” he wrote. “This would indicate companies can continue to produce strong earnings growth despite weaker economic data, as was the case in both the first and second quarters of 2011.”

--With assistance from Joanna Ossinger in New York and Roger Neill in London. Editors: Stephen Kleege, Nick Baker

To contact the reporters on this story: Kaitlyn Kiernan in New York at kkiernan2@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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