More than three out of four developed market stocks have seen a negative revision to their FY1 sales estimate over the last six months. Earnings estimates have fared slightly better, with about one-third of the developed world experiencing positive revisions. The energy sector stands out, having the greatest percentage of issues with positive revisions to estimates, while the industrials sector has lagged for several months now.
Regionally, DM Americas companies stand out with the largest, most consistent number of positive revisions for both sales and earnings estimates over the last 1-, 3-, and 6-month time periods. In DM Americas, the energy and financials sectors have seen the biggest improvements in sales estimates revisions– especially in the last month. By contrast, sales revisions for the health care sector have fallen from 59% positive six months ago to just 31% positive in the last month (the lowest of any sector).
In DM Asia, estimates revisions have actually turned increasingly negative over the last six months with just 6% of companies showing improvement in sales estimates and only 12% of companies showing improvements in EPS estimates, down from 10% and 22%, respectively. In the industrials sector, only 2% of companies have had a positive revision to sales estimates in the last 1- and 3-month periods. Sales and earnings estimates in the energy sector have improved, however, with 20% of companies experiencing positive sales estimates and 55% experiencing positive earnings estimates.
The energy sector has also helped to improve the overall percentage of companies in DM EMEA that have experienced positive revisions to sales and earnings. While not as strong as their U.S. peers, 25% of companies’ FY1 sales revisions were positive in the last month (up from just 8% a few months ago). FY1 earnings revisions have also improved, with about 30% of companies experiencing positive revisions over the last month (versus less than 20% in the last 3- and 6-month timeframes). Companies in the financials and materials sectors continue to have better than average revisions to both sales and earnings estimates.
In the emerging markets, about 40% of companies are experiencing positive revisions to both sales and earnings estimates. Again, the energy sector stands out with the largest percentage of constituents undergoing positive revisions. Financials and materials’ positive revisions also remain above average as their cyclical counterparts, consumer discretionary and industrials, have seen the least amount of optimism.
In EM Americas, the last month has ushered in a significant improvement in estimates as 95% of companies posted positive FY1 sales revisions and 76% saw FY1 EPS revisions move higher.
As with developed Asia, estimates revisions for EM Asia have declined over the last several months. Energy (especially) and financials companies have experienced consistently more constructive revisions over the last 1-, 3-, and 6-month time periods while telecommunication services has lagged the other sectors the most.
Revisions to sales and earnings estimates have been positive for about half of the companies in emerging Europe over the last several months. Here, information technology stands out as 100% of the constituents’ FY1 sales revisions have improved over each of the 1-, 3-, and 6-month time periods. EM EMEA industrials, conversely, have the fewest number of positive revisions, with just 8% reporting an improvement in sales estimates over the last month.
Given the substantial shift in the markets over the course of the last several months, it is not all that surprising to see impressive upgrades in sectors like energy, financials, and materials. The tendency of industrials (also a more cyclically inclined sector) to lag in nearly every region is somewhat surprising, however. Certainly, few investors would have anticipated such strength in EM Americas (mostly Brazil) over the last month– or EM EMEA information technology (i.e. Russian internet software & services companies) over the last six months, for that matter.
With the lowest number of positive revisions in the developed markets (for as far back as our data goes!), it seems reasonable to anticipate an improvement in estimates from here.
While there is still room for an expansion in the number of emerging markets companies experiencing positive revisions, they are currently not at such pessimistic extremes.
Article by Jennifer Thomson, Gavekal Capital Blog