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As the start of the Q2 earnings season approaches, there are concerns in the market about the impact of the stronger U.S. dollar and the impact of lower global economic growth on the sales and earnings of companies in the S&P 500. Are analysts more optimistic in terms of their ratings on companies in the S&P 500 with lower global exposure?

It appears analysts are slightly more optimistic. FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index) can be used to analyze global sales exposure for all the companies in the S&P 500. For this particular analysis, the index was divided into two groups: companies that generate more than 50% of sales inside the U.S. (less global exposure) and companies that generate less than 50% of sales inside the U.S. (more global exposure). The aggregate percentages of Buy, Hold, and Sell ratings for each of these two groups were then calculated. 

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For companies that generate more than 50% of sales inside the U.S., the aggregate percentage of Buy ratings was 49.1% on June 30. For companies that generate less than 50% of sales inside the U.S., the aggregate percentage of Buy ratings was 47.3%. Thus, the difference in the percentage of Buy ratings between these two groups of companies was slightly less than two percentage points. 

For companies that generate more than 50% of sales inside the U.S., the aggregate percentage of Hold ratings was 45.6% on June 30. For companies that generate less than 50% of sales inside the U.S., the aggregate percentage of Hold ratings was 45.9%. Thus, the difference in the percentage of Hold ratings between these two groups of companies was less than half a percentage point.

For companies that generate more than 50% of sales inside the U.S., the aggregate percentage of Sell ratings was 5.3% on June 30. For companies that generate less than 50% of sales inside the U.S., the aggregate percentage of Sell ratings was 6.9%. Thus, the difference in the percentage of Sell ratings between these two groups of companies was just over one and a half percentage points.

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 (58%) at the end of Q2. Over the past 12 months, the average percentage of Buy ratings for the Health Care sector has been 58%, which is the highest of all 10 sectors. On the other hand, the Utilities sector continued to have the lowest percentage of Buy ratings (38%) of any sector. Over the last 12 months, the average percentage of Buy ratings for the Utilities sector has been 35%, which was the lowest average of all 10 sectors.

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 (11%) of all 10 sectors. The average percentage of Sell ratings for the Energy sector has been 7% over the past 12 months, which is the fourth highest average of all 10 sectors. On the other hand, the Health Care (2%) had the lowest percentages of Sell ratings.

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Industry Analysts Project 12.3% Increase in Price over Next 12 Months

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 2315.96, which was 12.3% above the closing price for the index of 2063.11. Over the past 12 months, the average difference between the bottom-up target price and the closing price has been 8.6%. 

Over the past quarter, the bottom-up target price increased by 2.4% (to 2315.96 from 2261.87), while the price of the index decreased by 0.2% (to 2063.11 from 2067.89). The bottom-up target price has increased on a sequential basis in 34 of the past 35 months.

Market Strategists Project 8.4% Increase in Price for 2015

The top-down mean target price reflects the average of the target price estimates submitted to FactSet by market strategists for the S&P 500 for 2015. The number of market strategists submitting target price estimates to FactSet at the end of June was two.

The top-down mean target price was 2236.00 at the end of the second quarter, which was 8.4% above the closing price for the index of 2063.11.

Over the past twelve months, the average difference between the top-down mean target price and the closing price has been 3.2%. 

Over the past quarter, the top-down mean target price rose by 1.6% (to 2236.00 from 2200.0), while the price of the index decreased by 0.2% (to 2063.11 from 2067.89).

FactSet Targets and Ratings Quarterly Report

Download the full edition of this quarter's edition of FactSet's Targets & Ratings Quarterly. Visit www.factset.com/targetsratings to launch the latest report.

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Senior Earnings Analyst
John’s weekly research report, Earnings Insight provides analysis and commentary on trends in corporate earnings data for the S&P 500, including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.

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