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A Very Strong Q1 and 2021 Earnings Picture

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We started seeing a positive shift in the overall earnings picture in July last year when estimates started rising again after the sharp Covid-driven cuts.

This improving trend in estimate revisions remained in place over the following months and actually accelerated over the last few months, as the chart below highlighting the evolution of 2021 Q1 earnings growth estimates shows.

As the chart above shows, the expectation is for total S&P 500 earnings to increase +19.8% in Q1 from the same period last year on +5.4% higher revenues. Today’s +19.8% earnings growth rate is up from +19.4% last week.

Part of the strong growth in Q1 is reflective of easy comparisons, as the last month of 2020 Q1 was weighed down by the pandemic, though the full impact showed up in Q2. Those easy comparisons are notable for the Finance, Consumer Discretionary, Transportation and Energy sectors. Profitability in these sectors is notably above the Covid-hit levels of the year-earlier period, but they are still below the comparable period in 2019 (2019 Q1).

But it isn’t just easy comparisons that is giving us the strong aggregate growth in 2021 Q1. A number of sectors, including the all-important Technology sector, are on track to produce genuine growth, i.e., 2021 Q1 profitability growth above pre-Covid levels. These include, in addition to Technology (+27% above 2019 Q1 level), Construction (+55.1%), Medical (+27.2%), Basic Materials (+12.8%), Consumer Staples (+10.7%) and Utilities (+9.7%).

The Finance sector is benefiting from easy comparisons to the year-earlier period, but 2021 Q1 earnings are expected to be only -1.3% below the 2019 Q1 level.

Earnings Season Never Ends

The Q1 earnings season will really get going when the big banks come out with their March-quarter results on April 14th. But not all companies have fiscal quarters that correspond ‘cleanly’ with the calendar periods.

For example, there are almost two dozen S&P 500 members that have fiscal quarters that ended in February and 12 such companies, including FedEx (FDX - Free Report) , Nike (NKE - Free Report) , Costco (COST - Free Report) and others have reported their fiscal February-ending quarterly results already.

We and other data aggregators club the results from these 12 index members as part of our 2021 Q1 tally. We have another 5 S&P 500 members on deck to report fiscal February-quarter results this week, including Micron Technology (MU - Free Report) , Walgreens Boots Alliance (WBA - Free Report) , McCormick (MCK - Free Report) and others. Lululemon (LULU - Free Report) and BlackBerry (BB - Free Report) are also reporting this week, though these companies aren’t in the S&P 500 index.

Looked at this way, we will have counted almost two dozen such 2021 Q1 results before JPMorgan (JPM - Free Report) reports its quarterly results on April 14th.

The table below shows summary expectations for 2021 Q1, contrasted with what was actually achieved in 2020 Q4.

The chart below takes a big-picture view of the quarters, showing Q1 earnings and revenue growth highlighted and shown in the context of what was actually achieved in the last few quarters and what is expected in the coming periods.

The chart below shows quarterly earnings totals or quarterly aggregate net income, instead of year-over-year growth rates. This gives us a better appreciation of the pandemic’s earnings imapct.

The chart below presents the big-picture view on an annual basis. As you can see below, 2021 earnings and revenues are expected to be up +24.3% and +8.2%, respectively, which follows the Covid-driven decline of -13% in 2020.

On an index ‘EPS’ basis, the 2021 expectation works out to $169.35, up from $136.27 per ‘Index share’ in 2020.

These full-year estimates have been going up as well, as the chart below shows.

We envision this favorable revisions trend to accelerate over the next few months as the vaccination effort reaches a critical mass and greater ‘normalcy’ returns to life.

For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Q1 and 2021 Earnings Estimates Keep Going Up

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