Just ahead of earnings season, tech companies like Twitter Inc., Advanced Micro Devices Inc., and Micron Technology Inc. figured prominently on a list of S&P 500 index stocks that are outperforming or underperforming analyst expectations.
In a list prepared by FactSet, tech companies accounted for nearly half the stocks that had the largest disparities by percentage between their current trading price and average target prices.
Tech companies made up half the underachievers with Micron MU, +0.74% figuring prominently, with three out of 10 representing overachievers with Twitter TWTR, +3.53% and AMD AMD, +5.55% taking top spots there, according to John Butters, senior earnings analyst at FactSet.
Given the volatility of some tech stocks and recent price changes, here’s a version updated on Friday for those tech stocks covered:
|Company/ticker||Average target price on FactSet||7/6/18 closing price||% target/price disparity|
|Xerox Corp. XRX, +0.83%||$37.40||$24.39||53.3%|
|Lam Research Corp. LRCX, +1.19%||$259.14||$173.86||49.1%|
|Western Digital Corp. WDC, +0.61%||$114.25||$77.93||46.6%|
|Applied Materials Inc. AMAT, +1.52%||$69.36||$46.13||50.4%|
|VeriSign Inc. VRSN, +0.65%||$118.60||$141.91||-16.4%|
Some of that disparity has to do with how stocks have performed this year. In 2018, so far, Twitter shares have rallied 93%, while AMD shares have surged 59%. Meanwhile, Xerox shares have slumped 16% and Lam shares have slipped 6%. Analysts, however, still think Micron has room to run even though shares have rallied 29% on the year.
On the whole, however, while the tech companies account for a significant number of outliers, the value of the sector as a whole is slightly below the S&P 500 SPX, +0.85% average when it comes to analyst averages.
The average price target for a tech sector stock on the S&P 500 is 12.4% above its current trading price, while the average price target for a stock on the S&P 500 is 13% above the current price.
In a sign that analysts have become much more conservative over the past five years, Butters noted that the average difference between target prices of stocks on the S&P 500 and their actual prices 12 months later has been -0.3%, meaning stock prices were slightly higher than what analysts had forecast.
In comparison, when the averages are stretched out over the past 10 and 15 years, analysts appear to overestimate stock targets considerably. Over 10 years, analysts have overestimated stock prices by an average 10.9%, while over 15 years, the average has been by 9.7%, according to Butters.
As far as upcoming earnings go, analysts have hiked their earnings estimates on more than half of tech companies on the S&P 500 since the beginning of the July-ended quarter. Out of 71 companies, 43 have had their average earnings-per-share estimates raised by analysts, and of these, 10 companies have had their averages raised by more than 10%, with Twitter and AMD leading the pack, Butters said.
Meanwhile, the tech sector is expected to turn in 24.6% earnings growth, according to FactSet, with five out of six subsectors expected to turn in double-digit earnings growth: Internet Software & Services (59%), Semiconductor & Semiconductor Equipment (38%), Technology Hardware, Storage, & Peripherals (22%), IT Services (17%), and Software (10%).