Analysts Project 10% Increase For S&P Over Next Year by John Butters, FactSet

Following a drop in price of 5.3% (to 2000.54 from 2113.32) during the two trading days after the “Brexit” vote, the S&P 500 index recorded an increase in value of 4.9% during the final three trading days of the quarter to finish the second quarter at 2098.86. Where do industry analysts believe the price will go from here?

S&P 500

Industry analysts in aggregate predict the S&P 500 will see a 10.0% increase in price over the next 12 months. This percentage is based on the difference between the bottom-up target price and the closing price for the index at the end of June. The bottom-up target price is calculated by aggregating the mean target price estimates (based on company-level estimates submitted by industry analysts) for all the companies in the index. On June 30, the bottom-up target price for the S&P 500 was 2308.65, which was 10.0% above the closing price of 2098.86.

S&P 500

How accurate have the industry analysts been in predicting the future value of the S&P 500?

Over the previous year (July 2015 to June 2016), the average difference between the bottom-up target price estimate at the end of the month one year ago and the final price for the index at the end of the same month one-year later has been +9.7%. In other words, industry analysts on average have overestimated the final price of the index by 9.7% at the end of each month during the previous year.

Over the previous five years (July 2011 to June 2016), the average difference between the bottom-up target price estimate at the end of the month one year ago and the final price for the index at the end of that same month one year later has been +1.6%. In other words, industry analysts on average have overestimated the final price of the index by 1.6% at the end of each month during the previous five years.

Analysts Most Optimistic on Health Care, Least Optimistic on Energy

Overall, analysts are most optimistic on the Health Care sector, based on the percentage of Buy ratings at the end of June. The Health Care sector had the highest percentage of Buy ratings (56%) at the end of Q2. Over the past 12 months, the average percentage of Buy ratings for the Health Care sector has been 60%, which is the highest of all 10 sectors. On the other hand, the Utilities sector continued to have the lowest percentage of Buy ratings (34%) of any sector. Over the last 12 months, the average percentage of Buy ratings for the Utilities sector has been 37%, which is the lowest average of all 10 sectors.

S&P 500

Analysts are most pessimistic about the Energy sector, based on the percentage of Sell ratings at the end of June. The Energy sector had highest percentage of Sell ratings (10%) of all 10 sectors. The average percentage of Sell ratings for the Energy sector has been 9% over the past 12 months, which is the highest average of all 10 sectors. On the other hand, the Health Care sector had the lowest percentage of Sell ratings (2%). Over the last 12 months, the average percentage of Sell ratings for the Health Care sector has been 2%, which is the lowest average of all 10 sectors.

Industry Analysts Project 10.0% Increase in Price

The bottom-up target price for the S&P 500 is calculated using the same methodology to calculate the price of the index, except the closing price of each company is replaced with the mean target price for each company. The mean target price for each company is then multiplied by the float shares outstanding for that company. The numbers for all the constituents are then aggregated and divided by the index divisor.

At the end of the second quarter, the bottom-up target price for the S&P 500 was 2308.65, which was 10.0% above the closing price for the index of 2098.86. Over the past 12 months, the average difference between the bottom-up target price and the closing price has been 13.6%.

Over the past quarter, the bottom-up target price increased by 2.3% (to 2308.65 from 2256.59), while the price of the index increased by 1.9% (to 2098.86 from 2059.74).

FactSet Targets and Ratings Quarterly Report

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