During the third quarter, the S&P 500 index recorded an increase in value of 7.2%. Ahead of the start of third quarter earnings season, where do industry analysts believe the price of the index will go from here?
Industry analysts in aggregate predict the S&P 500 will see a 10.5% 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 as of yesterday (October 4). The bottom-up target price is calculated by aggregating the median target price estimates (based on company-level estimates submitted by industry analysts) for all of the companies in the index. On October 4, the bottom-up target price for the S&P 500 was 3205.51, which was 10.5% above the closing price of 2901.61.
Insight/2018/10.2018/10.08.2018_ToW2/SP500%20Bottom%20Up%20Target%20Price%20Vs%20Closing%20Price.png)
Insight/2018/10.2018/10.08.2018_ToW2/SP%20500%20Bottom%20Up%20Target%20Price.png)
At the sector level, the Materials (+16.2%) and Communication Services (14.6%) sectors are expected to see the largest price increases, as these sectors had the largest upside differences between the bottom-up target price and the closing price on October 4. On the other hand, the Utilities (+5.1%) and Health Care (+5.9%) sectors are expected to see the smallest price increases, as these sectors had the smallest upside differences between the bottom-up target price and the closing price on October 4.
Insight/2018/10.2018/10.08.2018_ToW2/Sector-Level%20Bottom%20Up%20EPS%20Targets.png)
At the company level, the 10 stocks in the S&P 500 with the largest upside and downside differences between their median target price and closing price (on October 4) are listed below.
|
Company |
Target |
Closing |
Diff ($) |
Diff (%) |
|
Western Digital Corporation |
96.00 |
56.61 |
39.39 |
69.6% |
|
Nektar Therapeutics |
86.00 |
52.11 |
33.89 |
65.0% |
|
Applied Materials, Inc. |
62.50 |
37.89 |
24.61 |
65.0% |
|
Micron Technology, Inc. |
69.50 |
44.16 |
25.34 |
57.4% |
|
Microchip Technology Inc. |
112.00 |
71.43 |
40.57 |
56.8% |
|
Lam Research Corporation |
225.00 |
149.01 |
75.99 |
51.0% |
|
Wynn Resorts, Limited |
181.50 |
123.44 |
58.06 |
47.0% |
|
EQT Corporation |
65.00 |
44.23 |
20.77 |
47.0% |
|
LKQ Corporation |
43.00 |
30.34 |
12.66 |
41.7% |
|
WestRock Co. |
73.00 |
51.59 |
21.41 |
41.5% |
|
Source: FactSet |
|
Company |
Target |
Closing |
Diff ($) |
Diff (%) |
|
Advanced Micro Devices, Inc. |
24.00 |
27.78 |
-3.78 |
-13.6% |
|
Flowserve Corporation |
48.50 |
54.49 |
-5.99 |
-11.0% |
|
Hormel Foods Corporation |
35.50 |
39.59 |
-4.09 |
-10.3% |
|
Juniper Networks, Inc. |
26.50 |
29.37 |
-2.87 |
-9.8% |
|
CF Industries Holdings, Inc. |
51.00 |
56.06 |
-5.06 |
-9.0% |
|
Henry Schein, Inc. |
80.00 |
87.25 |
-7.25 |
-8.3% |
|
Garmin Ltd. |
63.50 |
69.14 |
-5.64 |
-8.2% |
|
McCormick & Company, Inc. |
125.00 |
135.71 |
-10.71 |
-7.9% |
|
Clorox Company |
137.00 |
146.58 |
-9.58 |
-6.5% |
|
Discovery, Inc. Class A |
31.00 |
33.15 |
-2.15 |
-6.5% |
|
Source: FactSet |
Over the past five years, the average difference between the bottom-up target price estimate at the end of the month and the closing price 12 months later has been -0.3%. In other words, industry analysts have underestimated the price of the index 12 months in advance by 0.3% on average during the previous five years (using month-end values). Over the past 10 years, the average difference between the bottom-up target price estimate at the end of the month and the closing price 12 months later has been 9.7%. Over the past 15 years, the average difference between the bottom-up target price estimate at the end of the month and the closing price 12 months later has been 9.3%. In other words, industry analysts have overestimated the price of the index 12 months in advance by 9.7% on average over the past 10 years (using month-end values) and by 9.3% on average over the past 15 years.
Insight/Author%20Bios/JohnButters2.jpg)
Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His 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, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).
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