Morningstar Minute - Second-quarter earnings season

78% of companies reported a positive earnings surprise, but some sectors did better than others.

Morningstar Canada 18 August, 2017 | 5:00PM
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Robert Miehm: As of last Friday, we were just over 90% of the way through Canada's second-quarter earnings season, as measured by companies in the benchmark that have reported their June quarter-end. Roughly 78% of the companies in that same group have reported a positive earnings surprise.

Last year, about 71% had reported a positive earnings surprise when we were 90% of the way through earnings season.

The graphic displayed here indicates the percentage of companies in each of the 11 Morningstar sectors that have either contributed to or detracted from the 78% of companies that have reported a positive earnings surprise. Sectors contributing are indicated in green and detractors in red.

You can see for example, that financials, communication services and technology companies appear to have had a good quarter as a group, and the real estate, healthcare and energy sectors had a tougher time as a group meeting or exceeding expectations.

If we look at current valuations relative to their 10-year historical medians, technology and consumer defensive companies appear to be more richly valued, while health care and financials have valuations that appear to be falling below their respective 10-year histories.

Looking forward toward the end of this year and next, expected earnings are highest in the energy and materials sectors, with energy expectations being the higher of the two.

Given the high earnings expectations for these two sectors particularly in the current year, and to a lesser extent, a year into the future, the underlying commodities will need to resume their upward climb driven by factors such as growing demand, tighter supply management, supply disruptions or a combination of these factors.

For Morningstar Investment Management, I'm Rob Miehm

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Morningstar Canada

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