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Looking at Q4 and 2021 Earnings

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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:

  • With the start of the Q4 earnings season, the focus will be on expectations for full-year 2021 after the pandemic-plagued 2020. Estimates have been going up since early July, with S&P 500 earnings for the year expected to be up +21.9%.
  • With an extraordinary vaccination effort already underway, we feel that economic growth will turn out to be stronger than the current consensus growth estimate of +3.8% for 2021, even though recent data suggests that growth in Q4 likely moderated as a result of the fall and winter infection surge.
  • As such, we see earnings estimates for 2021 going up in a meaningful way to catch up with the improving economic reality as we go through the first half of the 2021.
  • For 2020 Q4, S&P 500 earnings are expected to be down -11.3% on flat revenues, which would follow a -7.0% earnings decline in Q3 on -0.7% lower revenues.
  • Overall, 11 of the 16 Zacks sectors are expected to experience earnings declines in Q4, with Transportation (-103.1% decline), Energy (-92.1%), Consumer Discretionary (+73.1%) and Conglomerates (-14.0%) as the big decliners.
  • For the Finance sector, Q4 earnings are expected to be down -8.9% on -3.3% lower revenues, which would follow declines of -11.7% in 2020 Q3, - 45.3% in Q2, and -32.6% in Q1.
  • For the Technology sector, Q4 earnings are expected to be down -0.2% on +9.1% higher revenues, which would follow the +13% earnings growth in Q3.
  • Sectors with positive earnings growth in Q4 include Construction (+22.7% earnings growth), Autos (+59.8%), Medical (+5.5%), Basic Materials (+6.9%) and Aerospace (+4.9%).
  • The Q4 reporting cycle has gotten underway already, as four S&P 500 members with fiscal quarters ending in November, have reported results in recent days. All of these November quarter companies get counted as part of our Q4 tally.  
  • Looking at the calendar-year picture for the S&P 500 index, earnings are expected to decline -16.9% on -3.8% lower revenues in 2020 and increase +21.9% on +7.7% 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 27.8X and index close, as of December 15th, is $133.39, down from $160.46 in 2019. Using the same methodology, the index ‘EPS’ works out to $162.60 for 2021 (P/E of 22.8X). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
  • For the small-cap S&P 600 index, Q4 earnings are projected to fall -18.3% on -3.2% lower revenues. This would follow the -7% decline on -6.3% lower revenues in Q3.
  • For full-year 2020, the S&P 600 index is expected to experience a -28.9% decline in earnings on -10.4% lower revenues, with easy comps pushing earnings growth to +35.6% 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, even though the most recent appear to show a moderation in activity levels in response to the Fall infection surge. 

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, as the chart below shows.













Estimates have largely been stable over the last few weeks, with the current -11.3% expected decline in Q4 down marginally from the preceding week. This could be reflective of the negative effects of surging infection rates in the country at present, which has been showing up in some of the more recent economic data as well. But we suspect the moderation or stalling trend in estimate revisions is likely just a seasonal phenomenon, reflecting the quiet period between earnings releases.

The recent release of quarterly results from AutoZone (AZO - Free Report) , Oracle (ORCL - Free Report) , Costco (COST - Free Report) and Adobe (ADBE - Free Report) for their respective fiscal quarters ending in November is actually the start of the Q4 reporting cycle. All four of these S&P 500 members and a number of others with fiscal quarters ending in November that will be reporting in the next few days get counted as part of the Q4 tally.

We strongly feel that the positive revisions trend that we have been seeing over the last few months will pick up again as more companies report quarterly results and discuss their outlook for the coming periods.

The chart below shows the quarterly earnings and revenue growth picture.












We remain positive in our earnings outlook, as we see the full-year 2021 growth picture steadily improving through the first half of the year as more of the population gets vaccinated.

We strongly feel that current consensus economic growth projections reflect learned experiences of economic recoveries from the last few recessions. We don’t think that this recovery will follow this past pattern as this downturn was fundamentally different as its epicenter was medical and not financial. As such, we see significant upside to current consensus GDP growth estimates of +3.8% for 2021, which drives our favorable earnings outlook for the year and beyond.

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












The flow of recent economic readings about the labor market, factory space and even retail sales suggest that activity levels have moderated in response to the ongoing surge in infections. But with the extraordinary vaccination effort already underway, it is reasonable to expect the pandemic getting under control towards the end of the first quarter of 2021.

As such, while growth in the current period (2020 Q4) will likely remain under pressure, we should expect the outlook steadily improving in the New Year.

Beyond the Q4 earnings season, the outlook remains positive.

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