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Netflix, Procter & Gamble, IBM and CSX Corp are part of Zacks Earnings Preview
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For Immediate Release
Chicago, IL – April 19, 2021 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Netflix, Inc. (NFLX - Free Report) , The Procter & Gamble Company (PG - Free Report) , International Business Machines Corporation (IBM - Free Report) and CSX Corporation (CSX - Free Report) .
Big Banks Foreshadow Improving 2021 Earnings Picture
We are off to a great start in the Q1 earnings season, with the big banks coming out with a much stronger profitability picture relative to what they were able to show in the preceding periods. This reconfirms our bullish earnings outlook that envisions estimates going up significantly over the coming months as the full extent of the economic rebound gets clearer.
The positive bank results aren't just reflective of business conditions in the first quarter of 2021, but rather a function of growing optimism about the coming quarters, notwithstanding the still unsettled Covid situation in major parts of the world outside the U.S.
The big banks released billions in loan loss reserves that they had set aside at the start of the pandemic to cover loans going bad as a result of Covid-related stresses. Needless to say, many of those negative scenarios didn't come to fruition, thanks to aggressive fiscal and monetary measures.
In effect, these banks are saying, through these reserve releases, that they expect economic conditions in the coming quarters to be stronger relative to what they had originally modeled. This creates a favorable read-through for all sectors, particularly the economically sensitive ones.
The unusually high year-over-year growth rates for bank earnings are primarily a function of easy comparisons and the aforementioned reserve releases. But that's not to suggest that there wasn't genuine strength in the quarterly numbers, as the group's capital markets business was off-the-charts good. Trading volumes, equity underwriting and M&A activities were very strong during the period, more than offsetting continued weakness in the core banking business with soft lending and margin issues.
The margin picture is on track to improve markedly in the coming quarters as the yield curve has steepened, though the outlook for lending demand still remains uncertain. The hopes is that loan demand should improve in the second half of the year as the recovery takes hold and the pandemic loses its bite.
The market's lukewarm reaction to these bank results is solely a function of how strong these stocks have been this year.
The Q1 reporting cycle accelerates meaningfully this week, with more than 250 companies on deck to report, including 75 S&P 500 members. This week's reporting docket is dominated by banks and brokers, but we do have a number of bellwethers like Netflix, Procter & Gamble, IBM, CSX Corp. and others. With results from 44 S&P 500 members out already, we will have seen Q1 numbers from more than a fifth of the index's total membership by the end of this week.
Q1 Earnings Season Scorecard
We now have Q1 results from 44 S&P 500 members or 8.8% of the index's total membership. Total earnings (or aggregate net income) for these 44 companies are up +93.3% from the same period last year on +7.7% lower revenues, with 81.8% beating EPS and revenue estimates.
The growth comparison is likely not fair, given the unusually high year-over-year growth rates in the Finance sector, a function of big reserve releases and easy comparisons in 2021 Q1.
The Finance sector is such a big factor in the earnings growth rate for the 44 index members that have reported at this stage that on an ex-Finance basis, the Q1 earnings growth for the remaining companies that have reported drops to only +0.1%. But even on an ex-Finance basis, the Q1 earnings growth rate still compares favorably to other recent periods.
For the Finance sector, we now have Q1 results from 40.7% of the sector's total market capitalization in the S&P 500 index and a big part of the remainder will report results this week. Total earnings for these Finance companies are up +174.5% from the same period last year on +14.1% higher revenues, with 93.8% beating EPS estimates and 81.3% beating revenue estimates.
This is a significantly better performance than we have seen from these banks in recent quarters.
Overall Expectations for 2021 Q1
Looking at Q1 as a whole, combining the actual results that have come out with estimates for the still to come companies, total earnings for the S&P 500 index are expected to up +27.1% on +6.2% higher revenues.
Part of the strong growth in Q1 is reflective of easy comparisons, as the last month of 2020 Q1 was weighed down by the pandemic, though the full impact showed up in Q2. Those easy comparisons are notable for the Finance, Consumer Discretionary, Transportation and Energy sectors. Profitability in these sectors is notably above the Covid-hit levels of the year-earlier period, but they are still below the comparable period in 2019 (2019 Q1), except for the Finance sector.
But it isn't just easy comparisons that is giving us the strong aggregate growth in 2021 Q1. A number of sectors, including the all-important Technology sector, are on track to produce genuine growth, i.e., 2021 Q1 profitability growth above pre-Covid levels. These include, in addition to Technology, Construction, Medical, Basic Materials, Consumer Staples and Utilities.
The Finance sector is benefiting from easy comparisons to the year-earlier period, but 2021 Q1 earnings are now expected to be +28.1% above the 2019 Q1 level.
On an index 'EPS' basis, the 2021 expectation works out to $171.02, up from $136.10 per 'Index share' in 2020.
These full-year estimates have been going up, as well.
We envision this favorable revisions trend to accelerate over the next few months as the vaccination effort reaches a critical mass and greater 'normalcy' returns to life.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>A Positive Start to Q1 Earnings Season
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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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Netflix, Procter & Gamble, IBM and CSX Corp are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – April 19, 2021 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Netflix, Inc. (NFLX - Free Report) , The Procter & Gamble Company (PG - Free Report) , International Business Machines Corporation (IBM - Free Report) and CSX Corporation (CSX - Free Report) .
Big Banks Foreshadow Improving 2021 Earnings Picture
We are off to a great start in the Q1 earnings season, with the big banks coming out with a much stronger profitability picture relative to what they were able to show in the preceding periods. This reconfirms our bullish earnings outlook that envisions estimates going up significantly over the coming months as the full extent of the economic rebound gets clearer.
The positive bank results aren't just reflective of business conditions in the first quarter of 2021, but rather a function of growing optimism about the coming quarters, notwithstanding the still unsettled Covid situation in major parts of the world outside the U.S.
The big banks released billions in loan loss reserves that they had set aside at the start of the pandemic to cover loans going bad as a result of Covid-related stresses. Needless to say, many of those negative scenarios didn't come to fruition, thanks to aggressive fiscal and monetary measures.
In effect, these banks are saying, through these reserve releases, that they expect economic conditions in the coming quarters to be stronger relative to what they had originally modeled. This creates a favorable read-through for all sectors, particularly the economically sensitive ones.
The unusually high year-over-year growth rates for bank earnings are primarily a function of easy comparisons and the aforementioned reserve releases. But that's not to suggest that there wasn't genuine strength in the quarterly numbers, as the group's capital markets business was off-the-charts good. Trading volumes, equity underwriting and M&A activities were very strong during the period, more than offsetting continued weakness in the core banking business with soft lending and margin issues.
The margin picture is on track to improve markedly in the coming quarters as the yield curve has steepened, though the outlook for lending demand still remains uncertain. The hopes is that loan demand should improve in the second half of the year as the recovery takes hold and the pandemic loses its bite.
The market's lukewarm reaction to these bank results is solely a function of how strong these stocks have been this year.
The Q1 reporting cycle accelerates meaningfully this week, with more than 250 companies on deck to report, including 75 S&P 500 members. This week's reporting docket is dominated by banks and brokers, but we do have a number of bellwethers like Netflix, Procter & Gamble, IBM, CSX Corp. and others. With results from 44 S&P 500 members out already, we will have seen Q1 numbers from more than a fifth of the index's total membership by the end of this week.
Q1 Earnings Season Scorecard
We now have Q1 results from 44 S&P 500 members or 8.8% of the index's total membership. Total earnings (or aggregate net income) for these 44 companies are up +93.3% from the same period last year on +7.7% lower revenues, with 81.8% beating EPS and revenue estimates.
The growth comparison is likely not fair, given the unusually high year-over-year growth rates in the Finance sector, a function of big reserve releases and easy comparisons in 2021 Q1.
The Finance sector is such a big factor in the earnings growth rate for the 44 index members that have reported at this stage that on an ex-Finance basis, the Q1 earnings growth for the remaining companies that have reported drops to only +0.1%. But even on an ex-Finance basis, the Q1 earnings growth rate still compares favorably to other recent periods.
For the Finance sector, we now have Q1 results from 40.7% of the sector's total market capitalization in the S&P 500 index and a big part of the remainder will report results this week. Total earnings for these Finance companies are up +174.5% from the same period last year on +14.1% higher revenues, with 93.8% beating EPS estimates and 81.3% beating revenue estimates.
This is a significantly better performance than we have seen from these banks in recent quarters.
Overall Expectations for 2021 Q1
Looking at Q1 as a whole, combining the actual results that have come out with estimates for the still to come companies, total earnings for the S&P 500 index are expected to up +27.1% on +6.2% higher revenues.
Part of the strong growth in Q1 is reflective of easy comparisons, as the last month of 2020 Q1 was weighed down by the pandemic, though the full impact showed up in Q2. Those easy comparisons are notable for the Finance, Consumer Discretionary, Transportation and Energy sectors. Profitability in these sectors is notably above the Covid-hit levels of the year-earlier period, but they are still below the comparable period in 2019 (2019 Q1), except for the Finance sector.
But it isn't just easy comparisons that is giving us the strong aggregate growth in 2021 Q1. A number of sectors, including the all-important Technology sector, are on track to produce genuine growth, i.e., 2021 Q1 profitability growth above pre-Covid levels. These include, in addition to Technology, Construction, Medical, Basic Materials, Consumer Staples and Utilities.
The Finance sector is benefiting from easy comparisons to the year-earlier period, but 2021 Q1 earnings are now expected to be +28.1% above the 2019 Q1 level.
On an index 'EPS' basis, the 2021 expectation works out to $171.02, up from $136.10 per 'Index share' in 2020.
These full-year estimates have been going up, as well.
We envision this favorable revisions trend to accelerate over the next few months as the vaccination effort reaches a critical mass and greater 'normalcy' returns to life.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>A Positive Start to Q1 Earnings Season
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>
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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.