Editor's note: Read the latest on how the coronavirus is rattling the markets and what you can do to navigate it.
Although only a few weeks have passed since February 20th (the day the S&P/TSX Composite Index hit its peak value), the firehose of market-related news is likely making it difficult to cut through the noise and understand what’s important to your equity investments.
Sell-side institutional research analysts are experts employed by major banks to provide estimates and insights on a company’s future performance primarily to institutional asset managers (the buy side). These estimates can often change based on updated guidance from the company, or other market news that may affect the analysts’ outlook (for example the impact of COVID-19 on supply chains). Of course, an individual analyst’s opinion is her own and can be subjective, but on aggregate the changes in estimates are a very useful tool to understand sentiment from these experts as a group.
To measure this sentiment, my colleagues at Morningstar® CPMS™ favour a measure known as a three-month estimate revision, which measures the latest median consensus estimate from the street on a company’s full year fiscal earnings and compares it to what it was 90 days ago. If the number appears negative, this means that analysts that cover the stock as a group have revised their estimates downwards.
This table outlines what the market float weighted 90-day EPS estimate revisions were on February 20th and again as of March 16th:
| Stocks with more than 3 estimates | Basic Materials | Consumer Cyclical | Financial Services | Real Estate | Consumer Defensive | Healthcare | Utilities | Communication Services | Energy | Industrials | Technology | |
| Stock count: | 374 | 89 | 32 | 31 | 5 | 16 | 22 | 17 | 15 | 75 | 48 | 24 |
| 90 Day EPS Estimate (As of Feb 20) | -4.4 | -17.9 | -1.2 | -0.8 | 3.1* | 0.1 | -15.1 | -8 | -4.3 | -3.7 | -6.7 | -6.1 |
| 90 Day EPS Estimate (As of Mar 16) | -10.6 | -16 | -5.1 | -0.4 | 3.7* | -1.5 | -10.1 | -7.4 | -4.5 | -42.1 | -11.6 | -3.6 |
Source: Morningstar® CPMS™ Data as of March 16th, 2020 | *For the real estate sector, cash flow estimates were observed instead of earnings.
For the 374 stocks in the table (those with more than 3 active estimates), the street seemed to be revising their estimate downward by 4.4% for the broad market going into the peak on February 20th, which is not exceptional when compared to the last ten years. Not surprisingly, amidst the chaos of COVID19 and oil price drops, that figure dropped significantly by March 16th bringing the aggregate figure to -10.6% which is closer to that seen in 2014 when oil prices took a less dramatic plunge.
Looking deeper into the sectors, analysts seem to be revising downward more dramatically on consumer cyclical companies, industrials, and of course energy companies. Sentiment on most other sectors looked relatively unchanged except for technology companies and healthcare stocks, which show negative sentiment, but less so compared to the peak of the market.
Here are the stocks across this same universe that currently have a greater than five per cent estimate revision, have already reported their latest fiscal results, and also pay a dividend:
| Company | Estimates | Market Cap ($m) | 90 Day EPS Estimate Revision (%) | Dividend Yield (%) |
| TransAlta Corporation | 9 | 1677 | 33.3 | 2.8 |
| High Liner Foods | 4 | 206 | 23.3 | 3.2 |
| Innergex Renew Energy | 6 | 2867 | 17.4 | 4.4 |
| TECSYS | 5 | 209 | 15.2 | 1.5 |
| KP Tissue | 6 | 98 | 15 | 7.1 |
| Capital Power Corp | 9 | 2563 | 15 | 7.9 |
| B2Gold Corp | 10 | 4317 | 12.9 | 1 |
| Maple Leaf Foods | 6 | 2574 | 8.4 | 3.1 |
| Franco-Nevada | 10 | 25780 | 8.1 | 1 |
| Cargojet | 12 | 1131 | 6.2 | 1.1 |
| CI Financial Corp | 8 | 3387 | 5.9 | 4.7 |
| ECN Capital Corp | 9 | 888 | 5.7 | 2.7 |
Source: Morningstar® CPMS™ Data as of March 16th, 2020
This article does not constitute financial advice. It is always recommended to speak to a financial advisor or investment professional before investing.
