Despite a slew of negative economic reports in recent weeks, analysts are increasing sales forecasts for Standard & Poor’s 500 Index companies. Bloomberg reports the increase could be most in three years.
Revenue will climb 10% in 2011, twice last year’s rate, as personal income and corporate spending recover, according to data from analysts compiled by Bloomberg. Net margin estimates were unchanged the past two months after rising more than 50% since 2009. The measure of income divided by revenue increased to 13.4% in the first quarter from 8.2% in October 2009, Bloomberg data show.
Companies that boosted profits by firing workers and closing factories in the first two years of the expansion are running out of opportunities to reduce costs, requiring sales gains to keep growing. While bears say U.S. businesses will fail to increase revenue fast enough to justify higher stock prices, chief executive officers at Caterpillar Inc. and Coventry Health Care Inc. have raised forecasts.
“In the early part of the recovery, the CEO focuses on efficiency, productivity and margin enhancing, until their sales kick in,” James Paulsen, chief investment strategist at Wells Capital told the news service. “Once that happens, that emphasis on margins starts to fade. What looks on the surface as something you’d check off as bad is actually an indication that things are getting better.”