S&P 500 companies only just wrapped up their first quarter, and already history is being made. Analysts are rushing to boost their forecasts with a never-seen-before verve.
A dozen companies in the S&P 500, including energy firms like ConocoPhillips (COP), materials firm Nucor (NUE) and consumer discretionary L Brands (LB) are expected to make at least double the profit analysts forecast coming into the year, says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
So far this year, analysts have upped their forecast for first quarter S&P 500 profit by an unheard of 6%. It’s the largest boost in S&P 500 earnings estimates in history, based on FactSet records going back to 2002. It also knocks out the previous largest jump in estimates, 5.4%, in the first quarter of 2018. That followed tax reforms that lowered some corporate tax rates.
A surge in expected profit forecasts is one of the first fundamental signs to underpin the S&P 500 powerful push to new highs. The S&P 500 Friday blasted past 4,000 for the first time to close at 4019.97. That’s a 7% jump — just this year so far. All told, investors are now up $3 trillion just this year, says Wilshire Associates. Some might worry it’s too much, too fast.
But much has to do with skyrocketing hopes for first quarter profit.
Rising S&P 500 Profit Forecasts
It’s hard to overstate the rising bullishness analysts have for first quarter S&P 500 profit. It’s historic.
Analysts now think S&P 500 companies’ profit will jump 23.8% in the first quarter, says John Butters, earnings analyst at FactSet. If that’s right, it would be the highest quarterly profit growth rate since the third quarter of 2018.
Seeing analysts up their profit forecasts is highly atypical. Usually, analysts lower their profit forecasts as the quarter wears on and reality sets in. In fact, S&P 500 earnings estimates dropped 4.2% as quarters unfolded in the past five and 10 years, Butters says.
So, where are the big boosts going?
S&P 500 Energy Profits Looking Better
Curious why the Energy Select Sector SPDR ETF (XLE) nearly doubled this year? And why it’s the top performing of all the S&P 500 sectors? Look at the bottom line.
Analysts now think S&P 500 energy companies’ profit will fall just 9.7% in the first quarter. That doesn’t sound great until you realize investors in January braced for a 61% collapse S&P 500 energy company profits. “Rising oil prices are contributing to the increase in earnings estimates for companies in this sector, as the price of oil today ($59.16) is 22% above the price for oil on December 31 ($48.52),” Butters said.
Some of the turnarounds in S&P 500 energy profits are remarkable. ConocoPhillips is now seen making 53 cents a share in the first quarter. That’s 364% more than analysts thought it would earn coming into 2021. No wonder the energy stock is up 35.1% this year already. And some cases are even more dramatic. Energy firm APA (APA) was expected just three months ago to make nothing in the first quarter. Now analysts see the company making 26 cents a share.
Shopping For Profit Surprises In Consumer Discretionary
Bath & Body Works operator L Brands is starting to put numbers behind its amazing stock gains.
Shares of the company are up more than 66% this year so far. That makes it one of the top S&P 500 stocks for the year. And yet, it’s been mostly speculation of the economy reopening that’s propelled gains. Not anymore. Analysts now think the company will make 98 cents a share in the first quarter. Just a few months ago, analysts thought it would lose 5 cents a share in the period.
And it’s easy to see why analysts were nervous. L Brands actually lost 99 cents a share in the first quarter of 2020. That’s right when the pandemic was heating up. How the profit picture has changed.
Nucor: Putting Profits Behind Stock Gains
What was the top S&P 500 stock in March? Steelmaker Nucor. It jumped 34.2% just in March. And now there’s a bottom line to support the surge of the stock.
Analysts now think Nucor will make $3.08 a share in the first quarter. That’s an astounding 193.3% increase from their forecasts just a quarter ago. If analysts are right, Nucor’s profit will rise more than 211% from the same year-ago quarter. The company is enjoying strength from an uptick in economic activity. Also President Joe Biden’s America-first infrastructure plan will likely require steel for roads and bridges.
Some investors might be nervous S&P 500 stocks are rising too much, too fast. But now the bottom line is keeping up — something that hasn’t happened in quite some time.
Largest S&P 500 Profit Upward Revisions
|Company||Symbol||Q1 2021 EPS Estimate On Jan. 1||EPS Forecast For Q1 2021 Now||EPS Estimate Increase YTD||Sector||Stock YTD %|
|L Brands||(LB)||-0.05||0.98||2,275.4%||Consumer Discretionary||66.2%|
|Under Armour||(UAA)||-0.05||0.04||166.1%||Consumer Discretionary||28.0%|
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
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