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The recovery has yet to be fully factored in by the consensus of analysts

Wed, Aug 12 2009, 16:48 GMT
by Economic and Strategy Team

National Bank of Canada


    Equity Watch

    One of the factors that propelled the markets over the past few weeks is strong earnings surprises. In the current earnings season, companies announced earnings results that were 10.9% above expectations in the U.S. and 8.9% in Canada. These positive surprises are leading analysts to increase their outlook. Over the past three months, the 12- month forward earnings have been revised upward by 1.5% in the U.S. This is the most positive revisions since 2005. In Canada, revisions are still negative, but the recent trend suggests we could see upward revisions soon.

    There is one indicator that would be even more bullish than analysts increasing their earnings outlook: analysts upgrading their recommendations. Indeed, analysts often tweak their earnings estimates, but they only change their recommendations when they are convinced that the outlook is improving or deteriorating. For the whole market, we find that there is still some scepticism regarding the recent rally. On a recommendation scale of 1 to 5, (1 being a strong sell and 5 being a strong buy), the S&P/TSX has a recommendation of 3.8, which is just below a buy recommendation. This is exactly the same level it was three months ago, before the strong earnings seasons.

    The bottom-line is that the current economic recovery is still not fully factored by the consensus. As analysts become convinced that the current economic rebound is sustainable, we are poised to see more recommendation upgrades, which obviously will be positive for the markets.

    Published on  Wed, Aug 12 2009, 16:50 GMT


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    This presentation may contain certain forward-looking statements about the 2009 Economic and Financial Outlook. Such statements are subject to risk and uncertainties. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change and economic conditions in Canada, North America or internationally. These and other factors should be considered carefully and readers should not rely unduly on National Bank of Canada’s forward-looking statements. This presentation may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express consent of National Bank.


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