Forget the Scalpel, Analysts Use Machettes to Kick Off 2008

Even though we are only three trading days into the year, if there is one clear trend in place (besides the market going down), it is that analysts are entering 2008 with a decidedly negative tone. We recently launched a new report for Bespoke Premium subscribers called Earnings Estimate Revisions (Download Sample pdf file) where we summarize and highlight positive and negative analyst earnings revisions over the last month by sector and group. Over time, we will also track these results on a historical basis to show how the market reacts.

For each sector, we calculated the net number of companies where analysts have raised earnings estimates and divided that by the total number of stocks in the sector. Using the Consumer Discretionary sector as an example, over the last month, analysts have raised earnings forecasts for 43 companies and cut forecasts for 118. This gives us a net result of minus 75. Dividing this into the total number of stocks in the sector (276), we get minus 27%. Three days ago this figure was minus 25%, which shows that analysts have soured on the sector even more over the last three days.

Below we highlight the one-month net earnings estimate revisions for each of the ten S&P sectors as it stands today versus where it stood on 12/31. The only sector that hasn't showed deterioration in the last three days is Financials, but this hardly indicates increased bullishness by analysts, as the net reading in that sector went from minus 51% to minus 50%. In every other sector, analysts have increased their rate of negative estimate revisions over the last three days. Additionally, while at the end of the year there were some instances where analysts were actually raising estimates more than they were cutting them (Consumer Staples, Energy, and Technology), as of today, there are no sectors where the number of net revisions is positive.

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