The trend in 2008 earnings estimate revisions for the financial sector is becoming less negative. The revision ratio (positive revisions divided by negative revisions) continues to show more profit projections being cut than raised, but the trend is turning back in favor of the bulls.
As the table below shows, the revisions ratio has improved for four consecutive weeks, from 0.20 to 0.35. The total number of positive revisions for financial stocks has also improved, from 244 to 464.
| FY08 Estimate Revisions for the Financial Sector |
| Date |
Positive
Revisions |
Negative
Revisions |
Revisions
Ratio |
| 2/27/2008 |
464 |
1344 |
0.35 |
| 2/20/2008 |
440 |
1543 |
0.29 |
| 2/13/2008 |
407 |
1645 |
0.25 |
| 2/6/2008 |
326 |
1535 |
0.21 |
| 1/30/2008 |
244 |
1230 |
0.20 |
| 1/23/2008 |
177 |
851 |
0.21 |
| 1/16/2008 |
166 |
841 |
0.20 |
| 1/9/2008 |
173 |
814 |
0.21 |
| 1/2/2008 |
180 |
766 |
0.23 |
The devil is always in the details, however.
Out of 861 financial companies within the Zacks Rank universe, analysts have only raised forecasts on 243 (slightly more than 25%). Out of this small sample, more than half only have one positive revision within the past four weeks. So the overall increase is nowhere as good as it might seem on first look.
This is not surprising. Many financial companies are continuing to write down loans, tight credit conditions are limiting loan originations and credit card default rates are on the rise. Not to mention the fact that the slowing economy is going to slow growth in deposits. Bluntly put, it's not a good time to be a bank.
So where are the positive estimates occurring? Insurers and REITs account for 60% of the positive estimate revisions within the Financial sector.
Even among these groups, however, the positive revisions are concentrated. About 17% of all raised forecasts for insurers have been for Aflac (AFL), Chubb (CB) and PartnerRe (PRE). These three companies also have more positive revisions than all of the major banks combined. (Notably, 20 of the 22 major banks that have had positive revisions are located outside of the U.S.)
Annaly Capital Management (NLY), Equity Residential Properties (EQR), Essex Property (ESS) and MFA Mortgage (MFA) received nearly 25% of all positive revisions for all REITs.
The trend might be improving, but it is still not good enough to justify broad bottom fishing within the financial sector. Nonetheless, there do appear to be some opportunities within the sector for those who are willing to look for them.
Charles Rotblut, CFA, is the Senior Market Analyst for Zacks.com.
