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First-quarter 2018 earnings season highlights

Technology, financials and consumer cyclicals stocks stand out with positive earnings surprises.

Robert Miehm 25 May, 2018 | 5:00PM
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Robert Miehm: Earnings season is just about complete in Canada. Of those companies in the index that have reported, about 56% reported above expectations, and about 40% reported below expectations, with the remainder reporting in line.

Looking at the chart of sector-based earnings surprise, technology, financials and industrials stand out with the highest percentages of companies posting positive earnings surprises. The consumer defensive and health care sectors stand out as sectors that had the most negative earnings surprises.

Another way to look at earnings surprise is using an index-weighted surprise as shown in the chart here. In this chart we see that technology, financials and consumer cyclicals stand out with positive weighted surprises. Health care, utilities and consumer defensive sectors had negative weighted earnings surprises.

If we look at current sector valuations relative to their 10-year historical medians, technology, industrials and healthcare are more richly valued. Basic materials and utilities have valuations that appear to be relatively more interesting at these levels.

And finally, looking at index-weighted earnings expectations for the year ahead, we see year-over-year growth in expected earnings is highest in the energy and utilities sectors, and lowest in health care, financials and communication services. Double-digit earnings growth is expected in eight of the 11 sectors presented here.

For Morningstar Investment Management, I'm Rob Miehm.

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Robert Miehm

Robert Miehm  Robert Miehm is a senior investment analyst with Morningstar Investment Management.

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