NEW YORK (AP) — Profit growth is edging higher for U.S. companies, and analysts are scrambling to hike their 2010 estimates. That’s the good news.
The bad news may be its impact on 2011. At the start of this year, analysts were projecting better than 30 percent year-over-year earnings growth from S&P 500 companies in 2011. By mid-August they had pared growth forecasts back by half.
Part of the problem is that profits are looking so strong. Big numbers this year make it tougher to show year-over-year growth in 2011. Although more analysts are boosting their profit estimates for 2011 rather than cutting, they’ve been boosting their 2010 forecasts by more.
More problems arise from concerns about a still-weak job market and pessimistic shoppers. Goldman Sachs strategists recently cut their expectations for aggregate earnings per share of the S&P 500 in 2011 to $89 from $93. They cited expectations for a weaker recovery.
The move was notable for two reasons: 1) Goldman at the same time boosted its 2010 aggregate earnings expectations to $81 per share from $78, and 2) it reversed a call from just over two months ago. At the end of May, the firm had been feeling optimistic enough that it raised its 2011 estimate to $93 from $90. “It was a badly timed decision in retrospect,” the strategists wrote in a recent report.
To be sure, collectively analysts still predict nearly 15 percent growth in earnings next year. That’s about the same growth the S&P 500 showed before the recession.
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Analysts continue to grow more optimistic about corporate earnings growth this year. But larger projections make the potential for growth in 2011 all the more challenging.
Witness how growth forecasts have moved in opposite directions since late 2009.
Oct. 1, 2009
2010 forecast: -16.9 percent
2011 forecast: 26.5 percent
Jan. 4, 2010
2010 forecast: -8.6 percent
2011 forecast: 30.6 percent
April 1, 2010
2010 forecast: 27.3 percent
2011 forecast: 20.9 percent
July 1, 2010
2010 forecast: 33.5 percent
2011 forecast: 17.3 percent
Aug. 17, 2010
2010 forecast: 35.3 percent
2011 forecast: 14.8 percent
Source: Thomson Reuters
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