* 0.2 percent profit rise seen for TSX composite index
* Rogers, CN Rail help kick off earnings season
* Profits at energy companies seen falling more than 7
By John Tilak
TORONTO, April 19 Corporate Canada looks set to
post lackluster first-quarter results, but lowered expectations
and a sharp selloff earlier this week may set the stage for
near-term share price gains.
Earnings beats and any optimistic outlooks are now more
likely to provide a boost when some of the biggest companies
start reporting next week.
"It's the magic of low expectations," said CIBC World
Markets senior economist Peter Buchanan. "Commodity markets
aren't that great, and developments in the domestic economy
haven't been wonderful, but the bar (for earnings) is not set
Telecommunications company Rogers Communications Inc
and Canadian National Railway, the country's
largest rail carrier, will be among the first to kick off the
season, reporting their first-quarter reports on Monday.
Analysts expect earnings from companies in the Toronto Stock
Exchange's benchmark S&P/TSX composite index to show
only a 0.2 percent rise from a year earlier, according to
Thomson Reuters StarMine SmartEstimates.
"The forecasts seem to be more dire than the reality," said
Serge Pepin, vice president of investment strategy at BMO Asset
Management Canada. "We're going into the earnings season with
this thought that things won't be as good."
TSX LAGS U.S. RALLY
Results that top the very modest expectations could prove to
be a much-needed catalyst for languishing Canadian stocks,
market strategists said. The TSX composite is down more than 3
percent so far this year, compared with a gain of more than 8
percent in the Standard & Poor's 500 Index.
Toronto stocks have lagged as earnings expectations have
fallen about 5 percent for TSX components in the last three
months, compared with a 3 percent decline for S&P 500 companies,
data from StarMine showed.
The sector expected to show the biggest earnings decline is
energy, which accounts for about 25 percent of the value of the
Canadian index. Prices for the country's heavy crude oil slumped
in the first three months of this year, and analysts now expect
energy companies to report a profit drop of more than 7 percent.
However, Elvis Picardo, strategist and vice president of
research at Global Securities in Vancouver, said most investors
would pay more attention to companies' outlooks than to
"That's usually the case, but more so this time," he said.
The most vulnerable segment in this regard may be gold
producers, which have had a disastrous run this year. While
first-quarter numbers will not reflect a recent dramatic selloff
in gold, including a record one-day drop, it could start to show
up in projections.
Still, the materials sector, home to gold companies, is
trading at a huge discount to historical levels, said Craig
Fehr, Canadian market strategist at Edward Jones in St. Louis.
"Valuations are attractive, and they are already pricing in
expectations for some earnings disappointment," he said.
Indeed, the TSX composite index as a whole is trading about
13 times one-year forward earnings, according to Thomson Reuters
data. That is also below historical levels.
The strongest growth in the quarter is likely to come from
the healthcare sector, where earnings are expected to climb 15.5
percent, according to StarMine.
Another bright spot is the industrials space, which includes
Canadian Pacific Railway and CN Rail. Analysts expect
the sector to record profit growth of about 7 percent.
But the picture is more mixed for financial stocks, which
make up almost a third of the index. Earnings are seen rising
just 3.5 percent as the Canadian economy slows and housing
"Financials are not going to provide the same lift that they
did in the fourth quarter, but that's more due to the weakness
in the nonbanking sectors than in the banks themselves," said
CIBC's Buchanan, who sees weakness in real estate investment
trusts and insurers.
Longer-term, analysts said the Canadian market's prospects
hinged on the global economy, which effectively sets the price
for much of the country's resource exports.
But with an unsteady U.S. recovery, as well as mixed signals
out of recession-hit Europe and higher-growth China, relief is
far from certain.
"The beacon of hope," said Global's Picardo, "is that the
global economy does a little better than expected and the TSX
will do well."
(Editing by Jeffrey Hodgson and Lisa Von Ahn)