S&P 500 Earnings. Goldman Sachs to $99 for 2011 and $113 for 2012. PLUS, Taking Profits In A ‘Favored Stock’

[ 6 ] May 16, 2011 |

GOLDMAN SACHS ON THE S&P500 EARNINGS TARGET AND SELLING ONE OF OUR FAVORED STOCKS DISCUSSED BELOW.

 

Please find attached Goldman Sachs US Equity Strategist David Kostin’s US Weekly Kickstart.  Highlights are below.

HIGHLIGHTS:

Our 1Q 2011 S&P 500 Beige Book highlights the continuing margin growth debate.

The ability of S&P 500 companies to continue expanding margins remains the most debated fundamental aspect of our outlook in
conversations with clients. Results from 1Q 2011 support our view as S&P 500 companies (ex Fin. and Util.) raised net margins on
sequential (17 bp) as well as year-on-year bases (114 bp). EBIT margins rose similarly. Notably, this was achieved despite a tepid 1Q
economic environment and surging input costs. As we highlighted in our quarterly Beige Book, pricing strategies and productivity
gains were key to this success. Other topics mentioned on earnings calls included international revenue growth and boosts to capex.

Performance
The S&P 500 rose 1.1% this week. Utilities was the
best-performing sector (+3.0%) while Energy was
the worst-performing sector (-0.5%). We expect
the S&P 500 to rise to 1525 in 12 months (+13%).

S&P 500 Earnings
Our top-down EPS forecasts of $96 and $106 for
2011 and 2012 reflect +15% and +11% growth,
respectively. Bottom-up consensus forecasts an
18% increase in 2011 to $99, and a 14% increase
in 2012 to $113.

Valuation
Top-down, S&P 500 trades at an NTM P/E of
13.5X. Bottom-up, it trades at an NTM P/E of 13.1X
and an LTM P/B of 2.4X.

 

ADDITIONALLY REGARDING WELLPOINT, ONE OF OUR FAVORED STOCKS:

We have Wellpoint ( WLP ) on our Favored Stocks list.  We added it to the list at a price of $68.76 with a target of $80.00.  The shares have surpassed the $80.00 target and we would recommend taking some profits.  The shares are trading currently at $80.78.  We remain of the opinion that Wellpoint is a quality company and it remains on our Favored Stock list.   Always remember, in the words of Fred Lange, there only one reason to buy a stock and that’s to sell it.

 

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