The symbolic start of the first-quarter earnings season in the United States has only just begun, but David Bianco, head of U.S. equity strategy at Bank of America, is raising his targets.
For the S&P 500, he now expects to see operating earnings of $80 (U.S.) a share in 2010, up from a previous estimate of $75 a share. He's more upbeat about the next two years as well. For 2011, he estimates earnings of $88 a share (a record high, and up from just $63.18 in 2009), up from $85 previously. And for 2012, he sees earnings of $94 a share, up from $90.
"The mounting evidence of the economy recovering is shedding more light on the S&P 500 [earnings per share]outlook," Mr. Bianco said in a note. "As growth gains momentum, we think it's appropriate to put less weight on the more extreme downside scenarios."
Financials are key here. He cut his expected aggregate loan loss provisions for S&P 500 financials - from 2010 to 2012 - from $365-billion to $330-billion, due to stabilized credit card losses.
As for the S&P 500 itself, his new year-end target is 1300, up from 1275 - even though he sees the 13-month-old rally taking a summer rest. On Wednesday, the index blasted through the 1200 threshold, taking it to its highest level since September 2008, on the back of better-than-expected quarterly results from Intel Corp. and JPMorgan Chase & Co.
While the revisions might appeal to investors looking for a reason to hold on tight for the rest of 2010, Mr. Bianco said that the most significant part of his target revision is the $3 boost to 2011 estimated earnings.
"This boost reflects higher S&P 500 top-line growth with more margin expansion from lower credit costs and more operating leverage than we previously assumed," he said.
His assumptions are based on U.S. unemployment remaining above 9 per cent through 2011 and the U.S. Federal Reserve leaving its key interest rate unchanged until March, 2011.
David Berman