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U.S. top lines set to track overseas exposure

By Guest Contributor
October 19, 2010

By Amitesh Kumar

High exposure to fast-growing economies is boosting revenues at globally active U.S. companies. Developing markets, especially in Asia and Latin America, continue to boost growth forecasts that outshine the anaemic U.S. growth outlook.

S&P500 companies that generate more than half of revenue from overseas operations are expected to see higher 2010 revenue growth (10 percent in aggregate), compared to slower growth (6 percent in aggregate) for companies that derived more than half of revenue from domestic operations, a Thomson Reuters Datastream analysis reveals.

S&P 500 2010 Sales Growth Estimate Analysis: Companies with Higher Domestic vs. Overseas Share

A Thomson Reuters Study focuses on opportunities in the U.S. arising from overseas exposure.

(To download the complete report, click http://www.trpropresearch.com/archive/file/662/)

The growth differences are expected to be higher among the companies with higher divergences in their proportions of revenues derived from overseas versus domestic market. Among the companies in the S&P 500, the top 100 that derive largest portion of their revenue overseas anticipate 12 percent growth in 2010 aggregate revenue, far surpassing the 4 percent of the 100 companies that generate the largest share of revenue from domestic sources.

The largest companies with higher overseas revenue share are better positioned to reap the benefit, the analysis shows.

Global players, such as Exxon Mobil, Intel Corporation, Coca-Cola, and McDonalds are expected to see a higher boost from their operations in the faster-growing developing markets. Companies such as Home Depot, AT&T, Verizon Communications, and WellPoint, each of which is more dependent on the domestic market, are likely to see weaker performance, as the U.S. consumer seems hesitant to spend.

S&P 500: More Overseas Revenue May Mean Better Performance in 2010 (Source: Thomson Reuters Datastream)

US Companies

2009 Domestic
Revenue in Total (%)

2010 Estimated
Revenue Growth

EXXON MOBIL CORP

33%

40%

INTEL CORPORATION

15%

24%

HEWLETT PACKARD CO

36%

10%

COCA-COLA CO

27%

4%

MCDONALDS CORP

35%

4%

HOME DEPOT INC

89%

2%

AT&T INC

100%

1%

VERIZON COMMUNICATIONS

100%

-1%

WELLPOINT INC

100%

-7%

BANK OF AMERICA CORP

69%

-19%

By sector, the S&P 500 Information Technology, Industrials, and Energy firms with the largest overseas exposure are likely to benefit the most, registering robust double-digit revenue growth in 2010, while Telecom, Utilities, and Health Care companies’ fates are largely tied to domestic demand.

The weaker outlook for companies with greater reliance on domestic revenues can mainly be attributed to reluctance of U.S. consumers to spend amid stubbornly high unemployment and lower confidence in the economy. The Reuters/University of Michigan Consumer Sentiment Index, a gauge of consumer confidence, fell to a one-year low in September 2010.

The Sentiment Indexes for Buying Conditions and Economic Outlook over the next 12 months (main components of the leading index), each show declining trends since May 2010. U.S. consumers are saving more to face any uncertain economic conditions, while they also strive to reduce debt to cut liabilities amid concerns about future income.

Economic activity in the manufacturing sector, as measured by the ISM index, also seems to be slowing. The ISM index has declined to 54.4 in September, lowest in 2010.

In contrast, demand in the rest of the world, especially Asia, Latin America, and outside Europe, appears to be thriving. The rapidly growing BRIC economies, in particular, should help buoy globally active companies. Companies exposed to these high-growth regions will have an advantage over those exposed to other regions. Higher demand in developing countries is encouraging companies to venture abroad and expand in foreign markets.

(Amitesh Kumar is an Analyst – Proprietary research with Thomson Reuters. The report was made using Thomson Reuters Datastream and Starmine Pro)

(The above article is not intended to be a financial advisory. Readers must seek specific advice from experts before making investment decisions.)

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