What do industry analysts know that we don’t know? They know more about the companies they follow than the rest of us who have chosen different career paths in the investment business. When I analyze the earnings, revenues, and profit margins of the S&P 500 along with its sectors and industries, I start by taking a peek at the data compiled weekly by Thomson Reuters on the analysts’ consensus for these variables. Then I try to reconcile my top-down “macro” model of these variables with the bottom-up “micro” expectations of the analysts.
What I am beginning to see recently is that industry analysts are turning more optimistic about the prospects for revenues this year and next year. They have also recently stopped lowering their earnings estimates for both years after having done so nearly every week since mid-2011.
Industry analysts have been nudging up their 2012 consensus estimate for S&P 500 revenues and raising their 2013 estimate since last fall, after lowering their expectations last summer. They expect that revenues will increase 4.5% this year and 5.5% next year. I track the time-weighted average of these annual estimates, which is a proxy for 52-week forward expected revenues. This measure bottomed at $910 during the week of September 24, 2009 and rose 22% to $1,110 during March 15 of this year. Along the way, there were soft patches during the second half of 2010 and last summer. But now, forward revenues for the S&P 500 is at a cyclical high and only 2.4% below the previous record high in mid-2008. (More for subscribers.)