Looking ahead to earnings reporting season

We take a look at earnings growth expectations and valuation metrics for Canadian stock sectors.

Robert Miehm 20 April, 2018 | 5:00PM
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Robert Miehm: Canadian earnings reporting season is just around the corner. We thought this would be a good time to have a look at a couple of sets of market fundamentals to help get you prepared. We’ll have a look at sector-based earnings growth expectations and valuation metrics.

Looking at current earnings expectations for the year ahead, sorted from highest to lowest, we see year-over-year growth in expected earnings is highest in utilities, energy, basic materials and industrials. You should keep in mind that many of the companies in these sectors are coming off a lower earnings base in the year-over-year comparison. Expected earnings is lowest in health care, real estate and communication services.

If we look at the two extremes in the chart -- the utilities and the health care sectors -- companies contributing the most to the higher utilities expectations, due to a combination of their sector weighting and expected earnings growth over the prior year are Brookfield Infrastructure Partners, Brookfield Renewable Partners and TransAlta Corp.

Companies contributing the most to the lower health care earnings expectations are Valeant, Sienna Senior Living and ProMetic Life Sciences. In aggregate, market expectations for earnings growth are sitting at about 13%.

Moving on to valuations, and considering just P/Es, P/Bs and price-to-cash flows, if we look at current sector valuations relative to their 10-year historical medians, technology, industrials and communication services appear to be more richly valued. Basic materials and financials have valuations that appear to be relatively more appealing at these levels.

We should note that the healthcare sector has a few stocks in it that do not yet have a 10-year history, and therefore that part of the table is not applicable. Looking at the top row in the table, we can see that current market valuations in Canada are sitting very close to their 10-year medians.

And that’s a brief look at a couple of sets of market fundamentals that can help get you started with your look into at the upcoming Canadian reporting season.

For Morningstar Investment Management, I’m Rob Miehm.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Bausch Health Companies Inc10.10 CAD-1.85
Brookfield Infrastructure Partners LP42.22 CAD1.69
Brookfield Renewable Partners LP37.03 CAD-0.40Rating
Sienna Senior Living Inc14.55 CAD-0.41
TransAlta Corp10.05 CAD1.31

About Author

Robert Miehm

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

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