TSX earnings leadership set to change
Growth to shift to consumer stocks, industrials and technology
Monday, June 13, 2005
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Canadian corporate earnings are likely to slow in 2006, according to a new report from UBS Securities Canada Inc. Growth is likely to shift from resources to consumer goods, industrials and technology.
In its latest look at TSX earnings, UBS strategist George Vasic notes, “After a one-quarter respite, the themes have returned to what had been seen in the second half of 2004; namely, that aggregate earnings estimates are up, energy is leading while non-energy has been cut slightly.”
The TSX estimates were revised up in the second quarter, but at a slower rate than in the first. Estimates for the TSX in 2005 were revised up by 1.8% in the latest quarter, and for 2006 they were revised up 2.2%, the report notes. Energy estimates saw sharp gains of about 10% in each year.
“Upgrades in our oil price outlook have led to sharp increases in energy estimates, and account for more than all of the rise in the aggregate TSX outlook since non-energy estimates have been trimmed for the fourth time in the last five quarters,” it notes. However, these cuts are still relatively minor, it says.
“While the widely anticipated slowdown next year continues to be a feature of the bottom-up outlook, we believe the real highlight is the changing composition. Specifically, the earnings leadership provided from materials and energy in 2004/05 is replaced by the non-traditional areas (by Canadian standards) of consumer discretionary, staples, industrials and technology,” the report suggests.
“Earnings are slowing down, but the estimates do not appear to be aggressive, since they are in line with National Accounts data in Canada and the US,” it concludes. “In addition, Canadian estimates may be getting some relief from the pause in the Canadian dollar’s appreciation, and as a result currency-adjusted unit labour costs are slowing sharply here while they are rising in the US.”
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