"US Companies' EPS Growth Forecast Revised Downward... Responding with Infrastructure and Trump Mid-to-Long-Term Policy Beneficiaries"

Among the S&P 500 companies in the United States, with 92% having reported their earnings, the communication and utility sectors showed relatively strong performance. In contrast, the energy and materials sectors underperformed due to the impact of climate factors. As the third-quarter earnings season is nearly complete, Korea Investment & Securities advised that investors should focus on infrastructure and long-term beneficiaries of the Trump administration's policies going forward.

Choi Bowon, a researcher at Korea Investment & Securities, stated in a report released on the 20th, "Before the earnings season began, the sales and earnings per share (EPS) of S&P 500 companies for the third quarter of 2024 were expected to increase by only 4.0% and 5.0% year-over-year, respectively." He added, "However, with 92% of companies having reported, third-quarter sales and EPS are now estimated to have increased by 5.3% and 8.8%, respectively. This is because 61% of companies reported sales better than expected, and 76% exceeded EPS expectations."

According to Korea Investment & Securities, the sectors whose third-quarter EPS significantly exceeded expectations were communication, utilities, consumer discretionary, and financials. Communication, consumer discretionary, and financial sectors reported better-than-feared results, while utility companies showed stronger-than-expected performance despite the underperformance of the largest market capitalization company in the sector. The sectors that underperformed relative to expectations were industrials, energy, and materials.

Researcher Choi explained, "The poor performance of large companies was due to the impact of climate disasters such as hurricanes." He analyzed, "The communication sector (+3.8 percentage points) was the only one among 11 sectors to see an upward revision in its fourth-quarter EPS forecast, while the energy (-8.6 percentage points) and materials (-11.3 percentage points) sectors experienced the largest downward revisions in their fourth-quarter EPS forecasts."

The fourth-quarter EPS is expected to increase by 9.8% year-over-year. However, the EPS growth forecast for the fourth quarter has been revised downward by 2.7 percentage points compared to October 7, before the earnings season fully began. He noted, "There are three main common factors among companies that reported weaker-than-expected third-quarter results and issued conservative fourth-quarter guidance: economic activities were disrupted due to hurricanes and heavy rains; the decline in government bond and mortgage rates was slower than expected; and U.S. companies were skeptical about announcing long-term plans ahead of the new administration's policy specifics."

Researcher Choi advised focusing on infrastructure, highlighting the growing need for infrastructure development capable of responding to climate disasters within the U.S. He said, "The second Trump administration emphasizes the necessity of spending for stable economic activities despite cuts in welfare-related expenditures such as healthcare and education. Infrastructure companies are a representative example."

He added, "Although there was a rebound buying trend centered on cyclical stocks after the presidential election, in the long term, it is judged that responding based on the representative policies of the second Trump administration and valuation levels is effective."

This content was produced with the assistance of AI translation services.