Bloomberg News

Barclays’ Knapp Sees Company Forecasts Hurting Stocks

April 24, 2012

Companies’ failure to boost forecasts for future profits and sales will weigh on the Standard & Poor’s 500 Index as investors project slower growth, according to Barclays Plc (BARC)’s Barry Knapp.

“Guidance is not moving higher and as a result, even where companies are beating estimates, the stocks still aren’t going up,” Knapp, the New York-based head of equity strategy at Barclays, said in a radio interview on “Bloomberg Surveillance” with Tom Keene. “If the guidance doesn’t move up, if the revenue’s missed, really what you’re discounting in terms of the growth outlook is not all that great.”

Knapp cited United Technologies Corp. (UTX:US), which reported first-quarter profit (UTX:US) today that topped analysts’ estimates, while revenue missed projections and the company’s forecasts (UTX:US) for 2012 were unchanged. The jet engine maker fell 0.1 percent to $79.68 at 9:55 a.m. in New York.

The S&P 500 jumped 8.7 percent this year through yesterday as concern Europe’s debt crisis will derail the global economic recovery abated and corporate profits exceeded analysts’ estimates. Of the 125 S&P 500 companies that have posted earnings since April 10, 82 percent beat projections. The benchmark gauge for U.S. stocks fell 3.7 percent from an almost four-year high on April 2 through yesterday as concern over Europe resurfaced and U.S. data trailed economists’ forecasts.

Knapp predicts the S&P 500 will end the year at 1,330, 4 percent below the average forecast of 11 strategists surveyed by Bloomberg as of April 16. He forecasts combined profit by S&P 500 companies will be $103 a share this year. Analysts that cover companies in the index estimate earnings of $104.86 in 2012 and $118.06 in 2013, according to data compiled by Bloomberg.

S&P 500 Valuation

The S&P 500 currently trades at 14 times profit in the past year and 13 times earnings in the next 12 months, data compiled by Bloomberg show.

“If the stock market has a huge rally into earnings season, undoubtedly investors have started to discount much better results,” Knapp said today. “A stock, of course, is a stream of future earnings. If those future earnings aren’t moving higher, then it’s just not enough to push the stock prices up. That’s at the core of why these individual stocks have not performing well even when they beat estimates.”

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

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


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Companies Mentioned

  • UTX
    (United Technologies Corp)
    • $105.15 USD
    • -1.23
    • -1.17%
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