The outlook for TSX earnings has improved says UBS Securities Canada Inc. in a new report, and the firm has revised its target fof the S&P/TSX composite index higher as a result.

The earnings outlook has improved in the wake of the new estimates put forward as a result of the just concluded earnings season, UBS says. “Specifically, the estimates for 2006 were raised by 2.1% to now show 24.5% growth, with 2007 increased by a similar 2.2% and checking in with 11% growth.”

It notes that non-energy earnings are expected to grow 20% in 2006 and 8.5% in 2007. “For a change, energy was not the primary catalyst; instead it was UBS’s widespread upgrade of commodity prices that caused a double-digit upward revision to estimates for the materials sector for both 2006 and 2007,” it explains. “The only other notable revision was a 2% to 3% upgrade in financials, with negative revisions being seen in the telecom, technology, utilities and industrial sectors.”

As a result of the brighter outlook, the firm hiked its TSX target up moderately to 12,250. “The increased estimates, coupled with the fact that the higher 2007 estimates have a greater weight in our 12-month target than they did three months ago, has increased our target from 11,750 to 12,250,” it explains.

However, it notes that this revision is not enough to affect its asset mix, nor does it change its view that the TSX is due for a normal pullback in the next few months given the length and strength of the current rally.

UBS is currently overweighting industrials, consumer staples and telecoms. It is market weighted on energy, materials, financials and tech. Underweights are on utilities, healthcare and consumer discretionary stocks.