Earnings estimates are sliding, but UBS Securities Canada Inc. says it is maintaining its Canadian earnings forecast.
In a new report, UBS says that its latest look at TSX earnings shows 2011 estimates are down modestly by 0.5% over the past three months, but 2012 estimates are down by a more substantial 5%. It notes that the 2012 cuts were broad based with only the telecom and health care sectors seeing upward revisions.
“In the wake of these revisions, TSX earnings are expected to rise 23% this year, and 10% in 2012,” it reports. It also introduced its 2013 earnings estimates, which foresee a 9.4% gain.
UBS says that the materials sector is expected to lead 2012 earnings growth, due to its gold price forecast of US$2050, whereas energy is expected to decline 8.5% (based on US$87 oil), with the other eight non-resource sectors expected to rise a moderate 4.7%. The 9.4% gain expected in 2013 TSX earnings is more balanced.
Notwithstanding the changes to earnings estimates, UBS is sticking with its market forecast. It says the TSX index is now trading at about 11.4 times its 12-month forward estimate, which is well below the 14.5 times that has prevailed over the last 25 years. Nevertheless, market uncertainty is expected to continue subduing valuations.
“In light of the global uncertainties that are reducing medium term economic growth prospects, we do not expect normal valuations to be restored within our forecast horizon,” it says. “Accordingly, we maintain our 12-month TSX target at 14,000, which is 12.7 times our 2013 earnings estimate.”