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Looking Ahead to a Better Earnings Picture

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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 revisions trend continues to improve, with estimates for the current period (2020 Q3) and beyond steadily going up, a notable shift in the post-pandemic earnings picture.
  • The Q2 reporting cycle has come to an end for 9 of the 16 Zacks sectors (455 S&P 500 members or 91% of the index have reported), with the Retail sector as the only one that has a significant number of reports still awaited.
  • Total earnings for the 455 S&P 500 members that have reported Q2 results already are down -35.5% on -11.3% lower revenues, with 79.6% beating EPS estimates and 62.6% beating revenue estimates.
  • This is the lowest earnings growth pace since the last earnings downturn following the 2008 recession, but the proportion of these companies beating consensus estimates, particularly EPS estimates, is tracking above historical trends.
  • For the Technology sector, we now have Q2 results from 87.4% of the sector’s market capitalization in the index. Total earnings for these Tech companies are down -3.4% on +3.9% higher revenues, with 90.9% beating EPS estimates and 80.0% beating revenue estimates. This is a bigger beats percentage than we saw from the same group in the preceding quarter.         
  • Looking at Q2 as a whole, total S&P 500 earnings are expected to be down -34.6% from the same period last year on -9.9% lower revenues, with 14 of the 16 Zacks sectors expected to experience earnings declines and four sectors expected to lose money (declines in excess of -100%).
  • The three sectors that are expected to lose money in Q2 are Energy (-153.0% earnings decline), Autos (-123.5%), Transportation (-145.7%) and Consumer Discretionary (-101.6%).
  • The two sectors expected to have positive earnings growth in Q2 are Utilities (+7.5% earnings growth) and Medical (+3.5%).
  • For 2020 Q3, total S&P 500 earnings are expected to decline -23.8% on -3.7% lower revenues. This is an improvement from the -26.5% earnings decline expected at the start of July.
  • For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -21.3% on -5.0% lower revenues. This is down from close to +8% growth expected at the start of the year, but better than the -24.1% decline a few weeks ago. For reference, S&P 500 earnings declined -19.1% in 2008 and -3.4% in 2009, though that was admittedly a different type of downturn.
  • Growth is expected to resume next year, thanks to easy comparisons, but the dollar level of earnings in 2021 will still be below the 2019 level.
  • The implied ‘EPS’ for the index, calculated using current 2020 P/E of 26.4X and index close, as of August 11th, is $126.22, down from $160.42 in 2019. Using the same methodology, the index ‘EPS’ works out to $158.13 for 2021 (P/E of 21.1X), below the 2019 level ($160.42). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
  • Please note that while full-year 2021 earnings for the S&P 500 index are currently expected to be up +25.3% from the 2020 level, the absolute dollar amount of 2021 earnings estimates remain below the 2019 level.
  • For the small-cap S&P 600 index, we have Q2 earnings from 538 index members. Total earnings for these small-cap companies are down -61.9% from the same period last year on -16.5% lower revenues, with 74.2% beating EPS estimates and 65.4% beating revenue estimates.
  • The proportion of S&P 600 members beating Q2 EPS and revenue estimates is significantly above historical levels, suggesting that estimates for the small-cap companies were even lower than their large-cap peers.


The growth picture emerging from the ongoing Q2 earnings season is very weak, with S&P 500 earnings on track to decline the most since the last earnings downturn following the 2008 recession. Also, most companies are still unable to provide guidance on account of the pandemic-driven uncertainty. But it isn’t all doom and gloom, with clear signs of improvement starting to emerge. Importantly, quite a few companies had reassuring things to say about trends in underlying businesses despite the macro uncertainty.

You can see these green shoots in EPS estimates for companies like Texas Instruments (TXN - Free Report) , Advanced Micro Devices (AMD - Free Report) , Whirlpool (WHR - Free Report) , Cognizant Technology (CTXS - Free Report) and others. These favorable estimate revisions are showing up in the aggregate picture as well, with aggregate earnings estimates for the S&P 500 index moving up lately, as the chart below showing the evolution of Q3 earnings growth estimates shows.














We are seeing a similar improvement in estimates for 2020 Q4 and full-year 2021 as well. The chart below shows the quarterly earnings and revenue growth picture.













The chart below shows the overall earnings picture on an annual basis.












The recent flow of economic readings has broadly been positive, suggesting that the hoped-for recovery is firmly in place. This is showing up in earnings estimates as well, which have started improving in a meaningful way, as indicated earlier. The question at this stage is whether the improving trend can continue even as the underlying health issue remains unresolved.

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