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.
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.
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.