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"Pleasure" consumption highly valued on Wall Street

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05/13/2019 | 10:28am EDT

The earnings season is coming to an end in the United States, in a context heightened by trade tensions between China and the United States. The overall result is positive, with prospects for a slight increase in results this year. Here is a focus on sectors, with investors who are always willing to pay a high price for the consumer discretionary sector.

Here are a few lessons from the earnings season in the United States, where 90% of S&P500 companies have published their results for the first three months of the year, based on data analyzed by FactSet:
  • 76% of S&P500 companies exceeded earnings expectations (more than the 5-year average of 72%)
  • 59% of S&P500 companies exceeded sales expectations (in line with the 5-year average of 59%)
  • The S&P500's average 12-month P/E is 16.5 times, perfectly in line with the 5-year average but above the 10-year average (14.7)
  • Over 2019, analysts expect an average of 3.3% increase in earnings and 4.7% increase in revenues, after -0.5% and +5.3% respectively in the 1st quarter.

Let's look at the valuations, compiled in the following table:
12-month P/E by current sector, 5-year averages and 10-year average (Source FactSet)

The 12-month P/E for the 12 sectors ranges from 21.1 times for discretionary consumption (Amazon.com, Home Depot, McDonald's, Nike, Starbucks, Booking...etc.) to 11.8 times for financials (Berkshire Hathaway, JP Morgan Chase, Bank of America, BlackRock, MetLife...etc.)
  • The only other sector that is evolving below its 10-year average, in addition to the financials that continue to pay for the 2008 debacle, is energy.
  • The sectors that are evolving below their 5-year average are finance, energy, health, commodities, industry and consumer staples.
  • The sectors that show a linear improvement in their ratios are consumer discretionary, information technology and utilities.
  • The sectoral distribution of valuations in the United States is slightly different from that of Europe, but remains close overall.
Stocks mentioned in the article
ChangeLast1st jan.
AMAZON.COM -0.68% 1964.52 Delayed Quote.31.69%
BANK OF AMERICA -0.27% 29.4 Delayed Quote.19.64%
BERKSHIRE HATHAWAY INC. -0.89% 309217.5 Delayed Quote.1.05%
BLACKROCK 0.00%End-of-day quote.-0.32%
BOOKING HOLDINGS INC -0.20% 1882.09 Delayed Quote.9.32%
DJ INDUSTRIAL -0.25% 27154.2 Delayed Quote.16.40%
HOME DEPOT (THE) -0.65% 213.04 Delayed Quote.23.99%
JP MORGAN CHASE & COMPANY -0.99% 113.54 Delayed Quote.17.47%
MCDONALD'S CORPORATION -0.94% 213.87 Delayed Quote.21.59%
METLIFE -0.56% 49.72 Delayed Quote.21.09%
NASDAQ 100 -0.88% 7834.896756 Delayed Quote.24.87%
NASDAQ COMP. -0.74% 8146.488965 Delayed Quote.23.36%
NIKE -1.02% 86.55 Delayed Quote.16.74%
STARBUCKS CORPORATION -1.31% 90.3 Delayed Quote.42.08%

Anthony Bondain
© MarketScreener.com 2019
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