The profit outlook for a host of Canadian market sectors has taken a turn for the ugly.
This table shows the three month change in analyst earnings expectations for the next twelve months. The S&P/TSX Technology Hardware Index, dominated by BlackBerry Ltd., is a horror show, naturally, as the company looks to retrench and restructure.
The materials sector's troubles come as a bit more of a negative surprise. Analysts have slashed profit forecasts by 20 per cent in the past 90 days. Despite this, the forward price-to-earnings ratio is no more attractive than it was at the beginning of the year.
Agriculture and precious metals stocks are responsible for the bulk of the carnage in the materials sector earnings outlook.
Potash Corp, the largest company in the index, has seen profit estimates reduced by 36.4 per cent. At Agrium, it's even worse as expectations have fallen by 53 per cent. For precious metals stocks, Goldcorp Inc. estimates have dropped 25.4 per cent, Barrick Gold Corp.'s by 18 per cent and Silver Wheaton Corp profits are now expected 20.7 per cent lower.
This all sounds terrible, but the big reductions are more likely to be a positive sign for future performance. Historically, the tendency has been for analysts to delay as long as possible before cutting estimates, and then to cut too far.
There's no guarantee that this is the case now, of course. But expectations have been reset, and the odds of companies beating reduced forecasts are clearly better.
Scott Barlow