Earnings continued to surprise positively, coming in 3.9% better than expectations (versus a 3.3% beat in Q3). Even though the U.S. economy has had a long economic expansion, both revenues and earnings accelerated sequentially in Q4 2017 versus Q3 2017. Revenues rose 8% versus 6% in the previous quarter and earnings rose 15% versus 9% in the previous quarter.
- All sectors showed median sales growth acceleration from Q3, and all but Health Care showed better EPS growth.
- Aided by an improving global macro economy, a weak dollar, and a lower forward 2018 corporate tax rate, 2018 S&P 500 earnings estimates have been revised higher by 5.1% and now call for 17% earnings growth for the year.
- Sectors with the biggest upward revisions were Transports, Financials, and Energy.
- The highlighted theme is the impact of the weakening U.S. dollar, especially against the Euro and other European currencies. Companies with high revenue exposure to Europe continue to outperform the S&P 500.
- Fundamentally, we particularly like the companies that are forecast to have high 2018 EPS growth combined with the potential to lower their 2018 tax rate and/or benefit from the weak U.S. dollar. Of these, currently actionable U.S. Focus List names include: EW, FLT, IDXX, MS, and TEAM. Other names that fit the trends but are not currently actionable include FLIR, GOOGL, ILMN, and PRAH. We would encourage investors to explore these names as they are currently in the sweet spot of these three trends.
