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Canadian Strategy Snapshot: Setting the Stage for a Positive Surprise Cycle


Bottom Line

Yes, the expected 2021 rebound in S&P/TSX earnings thanks to easy comparisons is well documented. However, our work suggests analysts remain cautious and reticent to raise estimates. In fact, when we look at trends exhibited since the June revision troughs in the TSX, 2020 estimates have been revised up just 13%, roughly in line with the net positive surprise seen in second-quarter earnings. This suggests to us that a vast majority of analysts are merely marking to market their estimates after being too pessimistic. Furthermore, while consensus numbers for 2021 earnings are expected to rebound by more than 50%, analysts have revised estimates up by less than 5%. Thus, we believe earnings growth estimates are likely too modest, thereby setting the stage for a strong positive earnings surprise cycle over the next few quarters and into 2021.

Main Points:

  • Sharp Rebound Expected, but Estimates Remain Modest

    • While earnings are expected to rebound sharply in 2021 on easy comparisons, positive revisions to 2020 and 2021 estimates have been relatively modest.

  •  Robust Operating Efficiency + Rebounding Economy + Positive Revisions = Positive Surprises Cycle

    •  There is still plenty of evidence that expectations are too modest, with a majority of analysts reticent to raise estimates in the face of fears of a second COVID-19 wave and election uncertainty.

  • Analysts Merely Marking to Market Estimates After Record Second-Quarter Beat

    • Looking out to the third quarter and beyond, it appears that a majority of analysts are merely marking to market estimates off the heels of the positive surprise in the second quarter.


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Brian Belski Chief Investment Strategist

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