For Immediate Release

Chicago, IL – February 20, 2020 – Zacks Director of Research Sheraz Mian says, “Total S&P 500 earnings are now expected to be up +1.0% on +5.0% higher revenues. The virus impact notwithstanding, estimates have fallen less than other recent periods.”

Q1 Estimates Holding Up Despite Virus Impact

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 picture emerging from the Q4 earnings season is one of steady improvement in the overall picture, with earnings growth on track to turn positive and an above-average proportion of companies beating top-line expectations. Estimates for 2020 Q1 have come down, but the negative revisions still compare favorably to other recent periods despite the virus impact.
   
• For the 411 S&P 500 members that have reported Q4 results already, total earnings (or aggregate net income) are up +1.1% from the same period last year on +4.6% higher revenues, with 73.0% beating EPS estimates and 65.7% beating revenue estimates.
   
• While the proportion of companies beating Q4 EPS estimates is tracking below what we had seen from this same group of 411 index members, the revenue beats percentage is notably above historical periods.
   
• For the Technology sector, we now have Q4 results from 93.5% of the sector’s total market cap in the index. Total earnings for these Tech companies are up +6.3% on +5.8% higher revenues, with 84.7% beating EPS estimates and an 88.1% beating revenue estimates.
   
• The Tech sector’s Q4 performance represents a notable improvement over what we have been seeing from the sector in other recent periods, particularly the last four quarters.
   
• For the Energy sector, we now have Q4 results from 84.4% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Energy sector companies are down 48% from the same period last year on -4.5% lower revenues, with 63.2% beating EPS estimates and 68% beating revenue estimates.
   
• For Q4 as a whole, total earnings or aggregate net income for the S&P 500 index are expected to be up +0.8% from the same period last year on +4.3% higher revenues, with the Energy sector as a big drag on growth.
   
• Sectors with weak growth in Q4, besides Energy, include Autos (-57.3%), Basic Materials (-23.3%), Aerospace (-43.1%), Retails (-1.9%), and Transportation (-4.1%). Q4 earnings are expected to be below the year-earlier level for 6 of the 16 Zacks sectors.
   
• Sectors with positive earnings growth in Q4 include Utilities (+18.9%), Business Services (+15.7%), Finance (+12.2%), and Consumer Discretionary (+10.9%). Tech sector earnings are now expected to be up +5.4% on +5.6% higher revenues.
   
• For the small-cap S&P 600 index, we now have Q4 results from 286 index members. Total earnings for these small-cap companies are up +0.5% from the same period last year on +3.0% higher revenues, with 63.3% beating EPS estimates and 68.2% beating revenue estimates.
   
• For Q4 as a whole for the small-cap index, total earnings are expected to be down -2.1% from the same period last year on +1.4% higher revenues, with strong growth in the Finance sector helping offset the Energy sector drag.
   
• Excluding the Finance sector, S&P 600 earnings would be down -20.1% in Q4. But had it not been for the Energy sector drag, Q4 earnings would be up +1.8%.
   
• Estimates for the current period (2020 Q1) have come down, with the impact of the ongoing Coronavirus outbreak adding to the customary seasonal down drift. Total S&P 500 earnings are now expected to be up +1.0% on +5.0% higher revenues. The virus impact notwithstanding, estimates have fallen less than other recent periods.  
   
• Total 2019 earnings or aggregate net income for the S&P 500 index are expected to be down -1.6% on +3.3% higher revenues, which would follow the +23.2% earnings growth on +7.5% higher revenues in 2018. Growth is expected to resume in 2020, with earnings growth of +7.4% on +4.9% higher revenues.
   
• The implied ‘EPS’ for the index, calculated using current 2019 P/E of 21.2X and index close, as of February 18th, is $159.35, modestly down from $161.89 in 2018. Using the same methodology, the index ‘EPS’ works out to $171.19 for 2020 (P/E of 19.7X). The multiples for 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.

 Q4 Earnings Season Scorecard (as of February 19th, 2020)

We now have Q4 results from 411 S&P 500 members that combined account for 88.6% of the index’s total market capitalization. Total earnings for these 411 index members are up +1.1% from the same period last year on +4.6% higher revenues, with 73.0% beating EPS estimates and 65.7% beating revenue estimates.

The two sets of comparison charts below put the results thus far in a historical context, first the growth rates for these 411 index members.

An above-average proportion of companies are beating revenue estimates at this stage. This has to count as a positive since estimates for the period had not come down as much as had historically been the case. The reasonableness of estimates ahead of the start of this reporting season can be gauged from the EPS beats percentage, which is tracking below historical periods.

Expectations for the Quarter

The earnings growth trend established in the first three quarters of the year is not expected to change in the last quarter of the year, with tough comparisons to the year-earlier period weighing on growth.

For Q4 as a whole, combining the results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index are currently expected to be up +0.8% on +4.3% higher revenues. The Q4 earnings growth picture improves further when looked at on an ex-Energy basis.

With respect to estimates for the current period (2020 Q1), we got off to a good start, with estimates appearing to nudge up a little at first. But estimates resumed their all-familiar downward trajectory over the last two weeks, with the Coronavirus outbreak adding to the negative revisions trend. A number of major companies with China exposure have explicitly cited the outbreak for negative earnings impact in Q1, with Apple (AAPL Quick QuoteAAPL - Free Report) making headlines recently with its updated guidance. The list of other such Coronavirus exposed operators is long, but include such players like Starbucks (SBUX Quick QuoteSBUX - Free Report) , Wynn Resorts (WYNN Quick QuoteWYNN - Free Report) , Royal Caribbean (RCL Quick QuoteRCL - Free Report) .

As negative as this revisions trend looks, it is actually a modest improvement over the comparable periods of other recent periods. This means that the revisions trend would have been a lot more favorable had it not been for the Coronavirus impact. 

The earnings growth picture is expected to change as we turn the page on 2019 given the tough comparisons to tax-boosted earnings in 2018, with growth resuming in 2020 Q1.

The market took the earnings decline in 2019 in the stride, looking ahead to the expected growth resumption this year and beyond. These expectations still hold, though they have started coming down lately, with the impact of the ongoing China virus outbreak a major unknown.

Biggest Tech Breakthrough in a Generation

Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.

A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.

See 8 breakthrough stocks now>>

Follow us on Twitter:  http://twitter.com/zacksresearch

Join us on Facebook:  http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

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.

Media Contact

Zacks Investment Research

800-767-3771 ext. 9339

support@zacks.com

http://www.zacks.com

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 http://www.zacks.com/performance for information about the performance numbers displayed in this press release.