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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:
For the 449 S&P 500 companies that have reported Q4 results already, total earnings are up +3.6% from the same period last year on +3.0% higher revenues, with 79.3% beating EPS estimates and 76.4% beating revenue estimates. This is a notably better performance than we have seen from the same group of companies in the first three quarters of the year.
Estimates for the current and coming quarters are steadily going up, as companies report better-than-expected Q4 results and guide higher. This is helping sustain the positive estimate revisions trend that has been in place since July 2020.
The Q4 reporting cycle has come to an end for 5 of the 16 Zacks sectors (Autos, Basic Materials, Conglomerates, Industrials & Transportation), with the Retail and Utilities sectors as the only ones that have a significant number of results still to come.
For the 88.9% of Retail sector market capitalization in the S&P 500 index that has reported results already, total earnings are up +15.1% on +14.8% higher revenues, with 72.7% beating EPS and 68.2% beating revenue estimates. The reported earnings and revenue growth rates drop to -4.5% and +8.1% once Amazon is excluded from the Q4 numbers.
For the Tech sector, we now have Q4 results from 91.3% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +20.7% on +14.8% higher revenues, with 85.9% beating EPS estimates and 85.9% beating revenue estimates.
The Tech sector’s Q4 earnings performance represents a notable improvement over what we have been seeing in other recent periods.
Looking at Q4 as a whole, total earnings for the S&P 500 index are expected to be up +3.3% on +3.0% higher revenues. This is a notable improvement relative to the -11.3% earnings decline on flat revenues that was expected at the start of the Q4 earnings season and would follow back-to-back quarterly declines in the first three quarters of the year.
Overall, 6 of the 16 Zacks sectors are expected to experience earnings declines in Q4, with Transportation (-91.6% decline), Energy (-95.9%), Consumer Discretionary (-59.0%) and Aerospace (-137.3%) as the big decliners.
For the Finance sector, Q4 earnings are now expected to be up +15.3% from the same period last year on +1.4% higher revenues, which would follow declines of -11.7% in 2020 Q3, - 45.3% in Q2, and -32.4% in Q1.
For the Technology sector, Q4 earnings are expected to be up +20.0% on +14.5% higher revenues, which would follow +12.9% earnings growth in Q3.
Other sectors with positive earnings growth in Q4 include Construction (+30.7% earnings growth), Autos (+170.1%), Medical (+15.1%), Basic Materials (28.1%), and Retail (+10.6%).
Looking at the calendar-year picture for the S&P 500 index, earnings are on track to decline -16.7% on -0.7% lower revenues in 2020 and increase +27.9% on +8.9% higher revenues in 2021. For 2022, index earnings are expected to be up +15.5% on +6.8% higher revenues.
The implied ‘EPS’ for the S&P 500 index, calculated using current 2020 P/E of 29.7X and index close, as of February 23rd, is $130.61, down from $156.79 in 2019. Using the same methodology, the index ‘EPS’ works out to $167.02 for 2021 (P/E of 23.2X) and $192.89 for 2022. The multiples 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, we now have Q4 results for 402 index members or 69.8% of the index’s total membership. Total earnings for these companies are up +1.3% from the same period last year on -0.6% lower revenues, with 72.9% beating EPS estimates and 78.6% beating revenue estimates.
Looking at Q4 as a whole for the small-cap index, total earnings are projected to fall -3.8% on -0.2% lower revenues. This would follow the -5.8% decline on -5.4% lower revenues in Q3.
For full-year 2020, the S&P 600 index is expected to experience a -29.4% decline in earnings on -9.4% lower revenues, with easy comps pushing earnings growth to +45.9% in 2021.
Favorable Revision Trend
As we have consistently been pointing out since the start of this reporting cycle, the tone and substance of management guidance remained positive and reassuring, helping estimates for the current and coming quarters to climb, as the chart tracking evolution of 2021 Q1 estimates shows.
Estimates have largely been stable over the last couple of weeks. With the bulk of the reporting cycle now behind us (only 51 S&P 500 results are still to come), there is simply not enough new information that will prompt analysts to update their models.
But we see a significant acceleration in the favorable revisions trend in the coming months on the back of a stronger-than-expected rebound in consumer and business spending as the ongoing vaccination effort gains pace. We strongly feel that current consensus estimates for 2021 GDP and earnings growth understate the full extent of the rebound.
The reporting focus lately has been on big-box retailers where results have been strong, with Q4 revenues at Home Depot (HD - Free Report) , Lowe’s (LOW - Free Report) and Walmart (WMT - Free Report) up +25.1%, +26.7%, and +7.3% from the year-earlier levels, respectively.
Unlike other traditional retailers that were deemed ‘unessential’ and largely remained closed during the pandemic, these companies remained open through the downturn and were big beneficiaries of the pandemic. The market’s muted reaction to these otherwise strong numbers is likely reflective of the concern that the growth momentum will be hard to sustain in the post-pandemic period.
In terms of the Retail sector’s scorecard, we now have Q4 results from 66.7% of the retailers in the S&P 500 index. Total Q4 earnings for these retailers are up +15.1% from the same period last year on +14.8% higher revenues, with 72.7% beating EPS estimates and 68.2% beating revenue estimates.
This is a weaker earnings growth pace and beats percentage than we saw from this same group of retailers in Q3. Please note that the group’s strong Q4 earnings and revenue growth pace looks a lot less impressive once Amazon’s (AMZN - Free Report) strong numbers are excluded from the Retail sector numbers (the retail giant is part of the Zacks Retail sector), as the growth comparison charts below show.
The Earnings Big Picture
The chart below shows the quarterly earnings and revenue growth picture. Please note that the +3.3% earnings growth on +3.0% growth in revenues for 2020 Q4 is the combined or blended growth rate.
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 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 to steadily improve. Beyond the Q4 earnings season, the outlook remains positive.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
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Image: Shutterstock
A Closer Look At Retail Sector Earnings
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:
Favorable Revision Trend
As we have consistently been pointing out since the start of this reporting cycle, the tone and substance of management guidance remained positive and reassuring, helping estimates for the current and coming quarters to climb, as the chart tracking evolution of 2021 Q1 estimates shows.
Estimates have largely been stable over the last couple of weeks. With the bulk of the reporting cycle now behind us (only 51 S&P 500 results are still to come), there is simply not enough new information that will prompt analysts to update their models.
But we see a significant acceleration in the favorable revisions trend in the coming months on the back of a stronger-than-expected rebound in consumer and business spending as the ongoing vaccination effort gains pace. We strongly feel that current consensus estimates for 2021 GDP and earnings growth understate the full extent of the rebound.
The reporting focus lately has been on big-box retailers where results have been strong, with Q4 revenues at Home Depot (HD - Free Report) , Lowe’s (LOW - Free Report) and Walmart (WMT - Free Report) up +25.1%, +26.7%, and +7.3% from the year-earlier levels, respectively.
Unlike other traditional retailers that were deemed ‘unessential’ and largely remained closed during the pandemic, these companies remained open through the downturn and were big beneficiaries of the pandemic. The market’s muted reaction to these otherwise strong numbers is likely reflective of the concern that the growth momentum will be hard to sustain in the post-pandemic period.
In terms of the Retail sector’s scorecard, we now have Q4 results from 66.7% of the retailers in the S&P 500 index. Total Q4 earnings for these retailers are up +15.1% from the same period last year on +14.8% higher revenues, with 72.7% beating EPS estimates and 68.2% beating revenue estimates.
This is a weaker earnings growth pace and beats percentage than we saw from this same group of retailers in Q3. Please note that the group’s strong Q4 earnings and revenue growth pace looks a lot less impressive once Amazon’s (AMZN - Free Report) strong numbers are excluded from the Retail sector numbers (the retail giant is part of the Zacks Retail sector), as the growth comparison charts below show.
The Earnings Big Picture
The chart below shows the quarterly earnings and revenue growth picture. Please note that the +3.3% earnings growth on +3.0% growth in revenues for 2020 Q4 is the combined or blended growth rate.
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 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 to steadily improve. Beyond the Q4 earnings season, the outlook remains positive.
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>