CEOs Most Optimistic on U.S. Profits in Bull Signal for S&P 500

Not only profits are beating analyst expectations, corporations are raising their outlook. This should lead to continued positive earnings revisions in weeks to come.

More U.S. executives than ever are increasing earnings forecasts compared with those lowering them, helped by almost $2 trillion of Federal Reserve spending and a recovery in the global economy.

EBay Inc., United Parcel Service Inc. and 196 other companies raised profit estimates above analysts’ projections last month as 130 firms cut them, the biggest gap since Bloomberg began tracking the data in 1999. Shipping companies and computer makers boosted forecasts the most, pushing the Morgan Stanley Cyclical Index of businesses most tied to the economy up 27 percent from July 2 through Nov. 5. That beat the 20 percent rally in the Standard & Poor’s 500 Index.

Companies are raising the outlook for U.S. profits at the same time the Fed is trying to prevent deflation and reduce unemployment by purchasing an additional $600 billion in Treasuries. The last time executives were this optimistic, stocks climbed 39 percent over the next 3 1/2 years, data compiled by Bloomberg show. (…)

About 1.5 U.S. companies boosted earnings estimates above analysts’ forecasts for each that cut projections in October. That’s about three times the average of 0.59 in the past 10 years, data tracked by Bloomberg show. The ratio fell to a record low of 0.1 in December 2008, three months after New York- based Lehman Brothers Holdings Inc. filed for bankruptcy. When it reached 1.1 in March 2004, the S&P 500 rose from 1,126.21 to a record 1,565.15 in October 2007, Bloomberg data show. (…)

Investors are betting profits at S&P 500 companies with the most sales outside the U.S. will beat the market. Corporations getting at least 50 percent of their revenue from foreign sources rose 10 percentage points more than American-focused stocks since July 2.

Earnings for the 30 companies in the Morgan Stanley index of economically sensitive shares will grow 25 percent next year, almost twice the rate of the S&P 500, according to analyst estimates compiled by Bloomberg. The cyclicals gauge trades for 12.1 times estimated 2011 earnings, or 0.6 point lower than the S&P 500, Bloomberg data show.

Philip Morris said on Oct. 21 that currency fluctuations, lower taxes and rising sales in countries from Algeria to Indonesia led the New York-based company to increase its 2010 income projection. The biggest publicly traded tobacco maker has advanced 29 percent since July 2. (…)

Most companies are earning more than analysts expected. More than 70 percent in the S&P 500 beat profit forecasts in the July-to-September period for the sixth straight quarter, the longest streak in Bloomberg data going back to 1993. S&P 500 earnings since Oct. 7 were 7 percent higher than analysts predicted, the data show.(…)

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