Are Analyst Growth Expectations Finally Lining Up With Reality? by Eric Bush, CFA – Gavekal Capital Blog
Next 12 month (NTM) median sales and earnings expectations for US companies have improved since earlier this year, however, a structural shift in expectations may be taking place. From 2002-2007, NTM median sales growth expectations averaged 7% and median EPS growth expectations averaged 13%. Obviously, expectations plunged during the financial crisis but growth expectations did rebound from 2010-2014. NTM median sales growth expectations averaged 6% and NTM median EPS growth expectations averaged 12% during this period. Despite this rebound from 2010-2014, it looks as though a downward shift has occurred over the past 18 months. Average NTM median sales growth expectations have nearly halved to 4% and average NTM median EPS growth expectations have fallen by 25% to just 9% since the beginning of 2015.
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Perhaps the explanation for this lower growth expectation range is simply analysts have finally downshifted expectations to better align with reality. EPS expectations for the NTM are now equal to the growth rate of aggregate net income growth for US companies since 2002. Net income has grown at about a 9% annualized rate over the past 13+ years. Current sales growth expectations are much closer to historical growth rates as well. Since 2002, aggregate sales have been growing at just above 4% annually.