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Zacks Earnings Trends Highlights: Target, Walmart, Home Depot and Lowe's
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For Immediate Release
Chicago, IL – December 3, 2020 – Zacks Director of Research Sheraz Mian says, “Looking at the quarter as a whole, total S&P 500 earnings are expected to decline -7.2% on -0.8% lower revenues"
Last Look at Q3 Earnings Season
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
We are close to turning the page on the Q3 earnings season, which turned out to be notably better than expected. A very high proportion of companies were able to beat Q3 EPS and revenue estimates, even though estimates for the period had actually gone up ahead of the start of the reporting cycle.
The key takeaway from the Q3 earnings season is a steadily improving outlook, with estimates for the current and coming periods going up.
Looking at the quarter as a whole, total S&P 500 earnings are expected to decline -7.2% on -0.8% lower revenues. Earnings growth for the quarter drops to -13.2% on an ex-Technology basis, but improves to -3.4% on an ex-Energy basis. The growth picture steadily improved as companies came out with better-than-expected results.
Sectors with the weakest Q3 growth outlook remained the social-distancing exposed spaces like Transportation (-116.8% earnings decline), Energy (-98.3%), and Consumer Discretionary (-72.0%).
Out of the total 16 Zacks sectors, 9 experienced earnings declines in Q3, with Construction, Medical, Technology, Autos, Retail, Consumer Staples, and Utilities showing earnings growth.
For the current period (2020 Q4), total S&P 500 earnings are expected to be down -11.2% on +0.1% higher revenues. Estimates for the quarter are steadily going up, a trend that we saw in Q3 as well, but the pace of improvement has decelerated in recent days.
Looking at the calendar-year picture for the S&P 500 index, earnings are expected to decline -17.1% on -3.9% lower revenues in 2020 and increase +21.9% on +7.5% higher revenues in 2021. Estimates for both years have been going up.
The implied ‘EPS’ for the S&P 500 index, calculated using current 2020 P/E of 27.6X and index close, as of December 1st, is $132.63, down from $159.96 in 2019. Using the same methodology, the index ‘EPS’ works out to $161.72 for 2021 (P/E of 22.6X). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
As with the large-caps, the Q3 earnings season turned out to be very small for the small-cap stocks as well. Total Q3 earnings for the 94.7% of S&P 600 member companies that have reported are down -5.8% on -5.4% lower revenues, with 72.8% beating EPS estimates and 72.9% beating revenue estimates.
For full-year 2020, the S&P 600 index is expected to experience a -30.4% decline in earnings on -10.6% lower revenues, with easy comps pushing earnings growth to +33.6% in 2021.
The overall earnings picture started improving in July, as the U.S. economy came out of the pandemic-driven slump. While pockets of entrenched weakness remain, the pace and magnitude of the recovery has largely been better than expected.
This improving trend has been showing up in positive estimate revisions, with analysts steadily raising their estimates. We saw this earlier with Q3 estimates and we are seeing the same trend in play for Q4 estimates as well.
Estimates have largely been stable over the last few weeks, with the current -11.2% expected decline in Q3 unchanged from last week. With the bulk of the reporting cycle now behind us (only 9 S&P 500 results are still to come), there is simply not enough new information that will prompt analysts to update their models.
Most of the recent reports have been coming from traditional retailers, with many of them coming out with impressive results. For example, Target (TGT - Free Report) posted Q3 earnings that were +101.1% higher than the year-earlier period on +21.3% higher revenue, while Walmart’s (WMT - Free Report) earnings and revenues were up +15.3% and +5.2%, respectively.
The year-over-year growth rates at home improvement operators Home Depot (HD - Free Report) and Lowe’s (LOW - Free Report) have been similarly impressive. While these retailers have thrived during the pandemic, the traditional department store operators have been struggling to survive, with a number of them going under.
Looking at Q3 as a whole, combining the results that have come out with estimates for the still-to-come companies, total S&P 500 earnings are expected to decline -7.2% from the year-earlier level on -0.8% lower revenues.
Looking at the outlook on an annual basis, index earnings are expected to decline -17.1% this year, after staying essentially flat last year. Growth is expected to resume next year, with easy comparisons driving most of the growth. The chart below shows the overall earnings picture on an annual basis.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Earnings Trends Highlights: Target, Walmart, Home Depot and Lowe's
For Immediate Release
Chicago, IL – December 3, 2020 – Zacks Director of Research Sheraz Mian says, “Looking at the quarter as a whole, total S&P 500 earnings are expected to decline -7.2% on -0.8% lower revenues"
Last Look at Q3 Earnings Season
Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
The overall earnings picture started improving in July, as the U.S. economy came out of the pandemic-driven slump. While pockets of entrenched weakness remain, the pace and magnitude of the recovery has largely been better than expected.
This improving trend has been showing up in positive estimate revisions, with analysts steadily raising their estimates. We saw this earlier with Q3 estimates and we are seeing the same trend in play for Q4 estimates as well.
Estimates have largely been stable over the last few weeks, with the current -11.2% expected decline in Q3 unchanged from last week. With the bulk of the reporting cycle now behind us (only 9 S&P 500 results are still to come), there is simply not enough new information that will prompt analysts to update their models.
Most of the recent reports have been coming from traditional retailers, with many of them coming out with impressive results. For example, Target (TGT - Free Report) posted Q3 earnings that were +101.1% higher than the year-earlier period on +21.3% higher revenue, while Walmart’s (WMT - Free Report) earnings and revenues were up +15.3% and +5.2%, respectively.
The year-over-year growth rates at home improvement operators Home Depot (HD - Free Report) and Lowe’s (LOW - Free Report) have been similarly impressive. While these retailers have thrived during the pandemic, the traditional department store operators have been struggling to survive, with a number of them going under.
Looking at Q3 as a whole, combining the results that have come out with estimates for the still-to-come companies, total S&P 500 earnings are expected to decline -7.2% from the year-earlier level on -0.8% lower revenues.
Looking at the outlook on an annual basis, index earnings are expected to decline -17.1% this year, after staying essentially flat last year. Growth is expected to resume next year, with easy comparisons driving most of the growth. The chart below shows the overall earnings picture on an annual basis.
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Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.