The Barron’s 400 Index companies are expected to post solid gains in both revenue and earnings for the second quarter, according to securities analysts’ forecasts.
The sum of per-share earnings estimates for the index components ($415.99) is 6% higher than a year earlier (when more than half weren’t in the index) and 12% more than they reported for the weather-wrenched first quarter. Revenue projections for the second quarter are up 5% from the year before and 1.6% above this year’s first quarter.
Assuming these estimates are within the usual range of accuracy, the corporate reports issued over the next several weeks should assuage investors’ fears that economic growth has stalled. Already, 29 Barron’s 400 companies have reported second-quarter results—some have non-standard fiscal years and a few are just quick on the draw—averaging a positive earnings surprise of 4%.
Naturally, the forecasts vary by sector. Here is how earnings and revenue estimates compare with these companies’ second-quarter results a year ago:
Consumer discretionary is the only sector to show an expected profit drop. It’s a tiny one, but this forecast squares with news articles about consumers keeping their wallets closed except for necessities. The materials sector is estimated to have only a small profit gain against a healthy uptick in revenue. This prediction shows these companies are continuing to break out of a prolonged downturn but still have a way to go in cost control.
The biggest profit gains are expected in technology, health care and consumer staples, but technology has a below-average estimate for increased revenue. The recent announcement of major layoffs at Microsoft Corp. indicates that not only does the cost cutting continue but also that companies are taking steps to realign resources. Energy leads the pack in anticipated increased revenue, a sign of renewed momentum.
The stage is set for the rollout of results. There undoubtedly will be both disappointments and extravagant surprises when reality supplants the predictions. In general, however, the financially strong companies of the Barron’s 400 are clearly poised for growth.