24/7 Wall St.

Wall Street analysts often believe that they know how much money large public companies will make before the companies actually post quarterly and annual profits. The most widely followed public corporations are tracked by as many as 50 analysts. The consensus estimates of these analysts are used to measure how America’s most well-known companies are doing compared to expert expectations.

24/7 Wall St. looked at the consensus profit estimates for America’s largest corporations for 2011 based on Bloomberg data. The goal was to see which 10 companies are forecast to make the most in net profit excluding special items this year. It is relatively normal for companies like Wal-Mart, which sell tens of thousand of products to tens of million of people, to post earnings figures close to what is expected. Wal-Mart’s sales are over $400 billion a year, and it is a close proxy for the economy in general.

This is not the case with corporations which rely on a much smaller set of products or services to produce revenue. Apple falls into this category. Its revenue and earnings are based almost entirely on the revenue from the iPod, iPad, iPhone, and Mac. The analyst forecasts for Apple are based heavily on best guesses for the unit sales of these products. It only takes the results for one  of Apple’s products to be off modestly to have a large effect on the firm’s financial results.

Another set of companies that have sales into the hundreds of billions of dollars but have hard-to-forecast earnings are energy companies. The price of oil has a substantial effect on the results of corporations like Exxon Mobil. Analysts who follow the company have to be able to forecast the price of crude as well as Exxon’s exploration costs.

The top 10 list of companies ranked by 2011 profit forecasts is dominated by big oil corporations and big banks. The cycle of oil firm earnings has been effected recently by the swing in crude oil prices which has been as high as $140 and as low as $40 over the last three years. Bank earnings have had violent fluctuations affected by the credit crisis. The world’s largest money center financial firms have only now begun to return to the levels of profitability they had before 2008.

The 24/7 Wall St. Most Profitable Companies for 2011:

1. Exxon Mobil
Projected profits 2011: $32.3 Billion (NYSE: XOM)
12 month price change: 5.33%
Consensus Revenue Est. 2011: $417.6 Billion, up 10.2%

Exxon Mobil’s earnings will be driven to a large extent by the price of oil and natural gas. Capital spending should not have a meaningful effect on earnings per share.  The buyout of XTO could hurt earnings in the short term.

2. Microsoft
Projected profits 2011: $21 Billion (NASDAQ: MSFT)
12 month price change: -9.85%
Consensus Revenue Est. 2011: $73.4 Billion, up 7%

Wall Street expects last year’s improvement in the sales of Windows, the company’s office and server software, and the Xbox to continue at robust levels.  Losses in the company’s online business division, which includes Bing, will remain large and will be affected by the combination with Yahoo!’s search operations.

3. Chevron
Projected profits 2011: $19.8 Billion (NYSE: CVX)
12 Month Price Change: 14.61%
Consensus Revenue Est. 2011: $247.23 Billion, up 21.8%

Capital costs will probably be higher for Chevron than most of its peers.  As with other multinational energy companies, the unexpected run-up of oil should be a windfall to better profits.  Uncertainty about operating results in some regions, such as Ecuador, could affect results.  New regulations on drilling safety could affect margins.  Furthermore, the political stability in regions where the company has significant exploration obligations cannot be anticipated, but represents significant risks.

4. JPMorgan Chase
Projected profits 2011: $19.1 Billion (NYSE: JPM)
12 Month Price Change: -2.88%
Consensus Revenue Est. 2011: $101.57 Billion, down 1.1%

Analysts expect that because JPMorgan has operations in almost every major sector of the financial services industry it will help the firm deploy resources, capital, and personnel.  At this point most experts do not expect that the Dodd-Frank Wall Street Reform and Consumer Protection Act will have much impact on JPMorgan’s earnings this year, as compared to last.  As is true with most money center banks, the economy could restrain improvements in investment banking earnings.  However, JPMorgan does enough business outside the developed world to make up for the more sluggish capital markets in the US and EU.  The bank still faces problems relating to the overall real estate market.

5. Pfizer
Projected profits 2011: $18.3 Billion (NYSE: PFE)
12 Month Price Change: -6.16%
Consensus Revenue Est. 2011: $66.09 Billion, down 1.8%

Pfizer’s integration of the Wyeth operations has probably yielded most of the anticipated cost savings.  New management may attempt to cut expenses even further, although opportunities seem limited.  The headwind that faces Pfizer and its peers will not go away.  The big pharma company has too many important drugs losing patent protection, and too few new drugs which have obtained, or are about to get, FDA approval.

6. Apple
Projected profits 2011: $18.2 Billion (NASDAQ: AAPL)
12 Month Price Change: 50.46%
Consensus Revenue Est. 2011: $103.3 Billion, up 16.7%

Wall Street’s anticipation of improved earnings for Apple are probably the greatest among for anylarge publicly traded companies in America.  Nearly every week, a research house increases its price target in Apple.  Some of these projections are near $500, while Apple’s current stock price is $332.  The extent to which Apple will hit its sales and earnings targets depends much more on the units of Macs, iPods, iPads, and iPhones shipped than on cost control.  The company has a history of managing its gross margins well.

Also Read: Geithner:  U.S. Out of Money By March

7. Bank of America
Projected profits 2011: $16.3 Billion (NYSE: BAC)
12 Month Price Change: -17.65%
Consensus Revenue Est. 2011: $109.7 Billion, down 3.5%

There are probably more risks in the Bank of America forecast than for most other major money center banks.  The buyout of Countrywide could still trigger large losses.  The bank’s recent settlement with Fannie Mae and Freddie Mac may only be the beginning of a costly process. The firm has ongoing exposure in its real estate portfolio.  Bank of America does not have particularly robust investment banking operations to offset weaknesses in its retail and corporate bank operations.

8. IBM
Projected profits 2011: $15.6 Billion (NYSE: IBM)
12 Month Price Change: 12.16%
Consensus Revenue Est. 2011: $103.15 B, up 4%

IBM has recently made a substantial part of its profits from its software and services divisions.  Its ability to show growth in these business units will depend to a great extent on a recovery of IT spending.  That recovery is expected to be uneven and will probably improve in Asia more quickly than in the developed countries.  IBM will continue to face pressure in its hardware businesses as competition with other large multinational technology companies, like Hewlett-Packard (NYSE: HPQ) and Oracle (NASDAQ: ORCL), grows.

9. Wells Fargo & Co.
Projected profits 2011: $15.3 Billion (NYSE: WFC)
12 Month Price Change: 10.4%
Consensus Revenue Est. 2011: $84.79 B, up 0%

The expectations for Wells Fargo’s earnings improvements in 2011 are based heavily on its mortgage banking operation. Losses, defaults, and foreclosures could worsen as housing prices drop through the year.  If the government does not intervene with tax credits or other incentives the slide could continue into 2012.  The bank has only modest institutional and investment banking businesses, certainly not enough to counter severe problems in retail and mortgage operations.

10. Wal-Mart
Projected profits 2011: $15.7 Billion (NYSE: WMT)
12 Month Price Change: .5%
Consensus Revenue Est. 2011: $444.2 B, up 4.8%

More than any other company in America, Wal-Mart is up against the risks of its size.  Its ability to grow significantly in the United States will depend on its success in opening stores in urban markets where its expansion has traditionally been blocked.  Wal-Mart will also try to get into other mass retail businesses, including grocery sales, but these initiatives are not large enough to have a significant effect on 2011 numbers.  Wal-Mart’s real growth prospects remain in its operations overseas, particularly in China and Mexico.  The company has flopped in large markets such as  Korea and Germany. It hopes that its efforts in India and Russia will be more successful.  It is unlikely that share buybacks and dividend actions will matter to investors.

Charles B. Stockdale, Douglas A. McIntyre