UBS_Equities-US_Equity_Strategy_4Q24_Earnings_Brief_January_23_Golub-113029491_19页_1mb

US Equity Strategy Summary

Core Content

This document provides an overview of the 4Q24 earnings outlook for the S&P 500 and its constituent sectors, highlighting the impact of one-time items and the expected EPS growth across different industries. It also outlines the equity strategy for the Americas and the valuation method used in the research, along with important disclosures and disclaimers.

Main Points

4Q24 Earnings Outlook

• Market Cap Reporting: 13.6% of the S&P 500's market cap has reported earnings.
• Expected EPS Growth:
  • S&P 500: 9.5% (blended estimate)
  • TECH+: 20.4%
  • Financials: 26.6%
  • Non-Cycicals: 3.8%
  • Cycicals ex-Energy: -1.4%
  • Energy: -32.9%
• Adjustments for One-Time Items:
  • AbbVie (ABBV) pre-disclosed a $1.6B IPR&D charge, which would increase 4Q EPS growth for the S&P 500 by 30 bps, Health Care by 260 bps, and Pharma/Biotech by 520 bps.
  • Adjusted EPS growth for the S&P 500 is expected to be around 12.1%, higher than the current 9.5% due to the typical pattern of estimate revisions.
• Key Companies Reporting: Over the next 5 trading days, 64 companies representing 20.4% of the S&P 500's market cap will report, including Microsoft, Meta, Qualcomm, Tesla, and others.

Sector Performance

• Financials are expected to have a particularly strong 4Q24, contributing significantly to the overall EPS growth.
• TECH+ companies, especially the top six (MSFT, AAPL, META, GOOG, AMZN, NVDA), are projected to outperform the market with an average EPS growth of 23.6% compared to 5.6% for the rest of the market.
• Energy is expected to be a major drag on EPS growth, with a projected decline of -32.9%.

Historical Surprise Trends

• Revenue and Earnings Surprises:
  • S&P 500: 8.9% earnings surprise (75% of companies beat estimates)
  • TECH+: 3.0% earnings surprise
  • Financials: 14.9% earnings surprise
  • Materials: 6.6% revenue surprise
  • Health Care: 1.2% earnings surprise
  • Utilities: 9.7% EPS growth
  • REITs: 8.3% earnings surprise

Key Information

• EPS Growth Revisions: The document suggests that 4Q24 EPS growth may be revised upward due to the typical pattern of estimate revisions.
• One-Time Adjustments:
  • Adjusted Lower: MRK reported a $5.5B charge, which lowered its reported EPS growth.
  • Adjusted Higher: ABBV’s pre-disclosed $1.6B IPR&D charge will increase its reported EPS growth.
• Valuation Method:
  • FSR (Forecast Stock Return) is defined as expected percentage price appreciation plus gross dividend yield over the next 12 months.
  • MRA (Market Return Assumption) is the one-year local market interest rate plus 5%, serving as a proxy for the equity risk premium.
• Rating Definitions:
  • 12-Month Ratings: Buy, Neutral, Sell based on FSR vs. MRA.
  • Short-Term Ratings: Buy or Sell based on expected price movement within 3 months.
  • Under Review (UR): Indicates possible changes in price targets or ratings due to near-term events.

Equity Strategy

• The strategy is prepared by UBS Global Research analysts, including:
  • Jonathan Golub
  • Patrick Palfrey
  • Will Jackson
  • Nicholas Samoyedny
  • Zenya Koprowski
  • Andrew Garthwaite

Risk and Disclosure

• The equity market is influenced by corporate earnings, interest rates, risk premia, and the business cycle.
• UBS Securities LLC is responsible for preparing the document.
• The document is for authorized recipients only and should not be commercially exploited or shared without prior written consent.
• Different UBS research units may have varying methodologies, investment horizons, and valuation approaches, which could lead to different or inconsistent recommendations.
• All UBS Global Research is available on the UBS Neo platform.
• The document includes disclaimers and terms of use, emphasizing that it is for educational purposes and not an advertisement or solicitation.

Conclusion

The 4Q24 earnings outlook highlights strong performance from Financials and TECH+ sectors, with notable adjustments due to one-time charges. The document also outlines the methodology for forecasting stock returns and the rating system used by UBS Global Research. It is important to note that all information is subject to change and is provided for educational purposes only.