We have consistently been pointing out the improving trend in the overall earnings picture ever since the Q2 earnings season got underway last month. While earnings took a big hit in Q2, as was expected all along, the impact turned out to be less significant than initially projected. Importantly, this slightly less rough view is not confined to the second quarter, but also extending to the current period (2020 Q3) and beyond. All of this is in-line with what we are seeing in macroeconomic data as well that shows the U.S. economy steadily coming out of the pandemic-driven downturn. We saw this in recent readings about retail sales, jobs, and the factory sector that all show steady momentum. We all know that a big support for the economy has been the extraordinary fiscal and monetary measures that were put in place in the wake of the pandemic. But a number of these supports have either ended or are coming to an end in the near future. The worry is that the recovery may lose some of its steam if the fiscal support measures are not extended, particularly for those parts of the economy that are expected to remain down for quite some time. Beyond the macro issues, we discuss the overall earnings story that emerged out of the Q2 earnings season, now winding down, through the following charts. Please note that through Friday, August 14 th, we have seen Q2 results from 458 S&P 500 members or 91.6% of the index’s total membership. We have another 18 index members on deck to report results this week, including Walmart ( WMT Quick Quote WMT - Free Report) , Target ( TGT Quick Quote TGT - Free Report) , Home Depot ( HD Quick Quote HD - Free Report) , Nvidia ( NVDA Quick Quote NVDA - Free Report) and others. The takeaway from the is that analysts were totally in the dark as they set their Q2 EPS and revenue estimates. As we all know, most companies withdrew previously issued guidance given how difficult it was project business trends during the period because of the pandemic. first chart The chart shows the proportion of the 458 S&P 500 companies that have reported through Friday, August 14 th, beating both EPS and revenue estimates.
As you can see above, an above average 55.7% of the S&P 500 members have beaten both EPS and revenue estimates. The compares the year-over-year earnings and revenue growth for these 458 index members with what we had seen from the same cohort of companies in other recent periods. Please note that when we say ‘earnings’, we mean aggregate net income, not mean or median EPS. second chart
What this chart is showing is that total earnings (or aggregate net income) for the 458 S&P 500 members are down -35.4% on -11.3% lower revenues. To round out this scorecard, 79.7% of these 458 index members have beaten consensus EPS estimates and the corresponding revenue beats percentage is 62.9%, with a blended beats percentage of 55.7%. The shows how estimates for the current period (2020 Q3) has evolved since the Q2 earnings season got underway. third chart
As you can see above, Q3 earnings for the S&P 500 index are currently expected to decline -24% from the same period last year. But the growth picture has been steadily improving since the start of July. We see a similar trend in place for 2020 Q4 and full-year 2020 estimates as well. This is a notable improvement in the overall earnings picture since the start of the pandemic and is in-line with high-frequency macroeconomic data that is showing a similar improvement in the economy’s growth drivers. The question at this stage is the extent of damage to this improving as a result of Congress’ inability to extend the pandemic-related relief measures that played a critical role in stabilizing the economic picture. The below takes a big-picture view of the quarters, showing Q2 earnings and revenue growth in the context of what was actually achieved in the last few quarters and what is expected in the coming periods. Please note that the Q2 earnings and revenue growth figures in this chart represent the blended numbers for the quarter, not just the reports that have come out already. fourth chart
The below presents the big-picture view on an annual basis. As you can see below, 2020 earnings and revenues are expected to be down -21.3% and -5%, respectively. fifth chart
As would be expected, 2020 estimates came down as the pandemic unfolded, with the current -21.3% decline down from +7.9% growth at the start of the year. But as we mentioned earlier in the context of 2020 Q3 estimates, the revisions trend lately has been positive, as the chart below shows.
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Looking Ahead to a Better Earnings Picture
Breakout Biotech Stocks with Triple-Digit Profit Potential The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases. Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better. See these 7 breakthrough stocks now>>