Note: The following is an excerpt from this week’s report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, Earnings Trends please click here>>> Here are the key points: We are off to a strong start to the Q1 earnings season, with growth accelerating and the outlook for the coming periods steadily improving. Total earnings for the 75 S&P 500 companies that have reported Q1 results are up +59.2% on +6.1% higher revenues, with 85.3% beating EPS estimates and 78.7% beating revenue estimates. The outsized earnings growth is largely due to very strong numbers from the Finance sector. For the 45.7% of the Finance sector’s market capitalization that have reported Q1 results, total earnings and revenues are up +165.6% and +13.1%, respectively, with 96.2% beating EPS estimates and 84.6% beating top-line estimates. A combination of easy comparisons and unusually strong capital markets business drove the group’s strong results. Excluding the Finance sector’s strong growth, Q1 earnings growth for the remainder of the companies that have reported results would be up +6.3% (vs. +59.2%) on +3.5% (vs. +6.1%) higher revenues, which is still the strongest growth for this cohort of companies in recent quarters. Looking at 2021 Q1 as a whole, combining the results that have come out with estimates for the still-to-come companies, total S&P 500 earnings are now expected to be up +28.1% from the same period last year on +6.3% higher revenues, with a combination of easy comparisons and strong gains in a number of sectors giving us the growth rebound. Estimates for the current and coming quarters are steadily going up, a trend that has been in place since last Summer. We expect this favorable revisions trend to accelerate in the coming months as we start looking past the pandemic. For the June quarter, S&P 500 earnings are currently expected to be up +53.3% on +15.7% higher revenues, as the year-earlier period represented the bottom of the Covid hit to earnings. The +53.3% earnings growth rate is up from +50.6% at the end of March and +41.6% at the start of January 2021. The sectors with positive earnings growth in Q1 include: Finance (+90.8% earnings growth), Technology (+22.5%), Autos (+204.9%), Retail (+42.9%), Medical (+19.8%), Basic Materials (+64.2%), Construction (+39.5%), Industrial Products (+25.0%), Utilities (+4.1%), and Consumer Staples (+7.1%). The weakest earnings growth in Q1 is expected to come from the Transportation (-202.0% earnings decline), Consumer Discretionary (-35.5%), as well as the Energy (-18.9%) sector. For the Finance sector, Q1 earnings are expected to be up +90.8% on +5.5% higher revenues, as the group’s year-earlier results were dragged down by big loan-loss reserves at the banks as the pandemic got underway. For the Technology sector, Q1 earnings are expected to be up +22.5% from the same period last year on +17.6% higher revenues, a clear case of strong growth and not easy comparisons. Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +27.1% on +8.6% higher revenues in 2021 and increase +13.1% on +6.3% higher revenues in 2022. This would follow a decline of -13.1% in 2020 on -1.8% lower revenues. The implied ‘EPS’ for the S&P 500 index, calculated using the current 2021 P/E of 23.9X and index close, as of April 20th, is $172.83, up from $135.97 in 2020. Using the same methodology, the index ‘EPS’ works out to $195.42 for 2022 (P/E of 21.2X). 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 Q1 results from 32 index members or 5.3% of the index’s membership. Total earnings for these 32 index members are up +38.8% on -3.9% lower revenues, with 78.1% beating EPS estimates and 71.9% beating revenue estimates.
Notwithstanding all the headlines about Netflix’s ( NFLX Quick Quote NFLX - Free Report) weak results, the tone and substance of the ongoing Q1 earnings season remains very positive and strong. Not only are most companies beating Q1 estimates, but they are also providing positive guidance and favorable commentary about coming periods. This is helping sustain the positive revisions trend that has been in place since last Summer. The chart below shows how estimates for the current period (2021 Q2) have evolved in recent days. Estimates for full-year 2021 have been going up as well and the favorable revisions trend is broad-based and not concentrated in one or a few sectors. We expect this favorable revisions trend to accelerate in the back half of the year as we start looking at the post- pandemic world. The picture emerging from the 15% of the S&P 500 results that have come out already is one of all around strength and positive momentum. The airlines are undoubtedly still struggling, but even they can see light beyond the pandemic tunnel. Results from the Finance sector dominate the reported aggregate numbers at this stage and we all know that Finance numbers were very strong, which we will dwell on a little later. But are seeing very strong numbers from the Medical, Construction, Business Services and even Consumer Staples sectors. Results in the Finance sector have benefited from releases of loan-loss reserves that they believe will no longer be needed given the improving outlook for the U.S. economy. Such reserves totaled more than $90 billion at the end of 2020 Q4 among the six largest banks – JPMorgan ( JPM Quick Quote JPM - Free Report) , Bank of America ( BAC Quick Quote BAC - Free Report) , Citigroup ( C Quick Quote C - Free Report) , Wells Fargo ( WFC Quick Quote WFC - Free Report) , Goldman Sachs ( GS Quick Quote GS - Free Report) and Morgan Stanley ( MS Quick Quote MS - Free Report) . JPMorgan released $5.2 billion of reserves in its 2021 Q1 earnings report, which came after $2.9 billion released in the preceding period. We should note that it wasn’t just reserve releases that drove the +399.1% year-over-year jump in earnings on +14.2% higher revenues at JPMorgan, as the bank benefited from blockbuster capital markets business. Activity levels in the equity underwriting, M&A and trading was close to record levels for the seasonally weak Q1 period, which more than offset continued softness in lending demand and margin pressures. The strong bank results were no surprise for the market, as can be seen from the group’s impressive stock market performance lately. For the stock market momentum to continue, the group will likely need to show that the core banking business will resume normal growth in the second half of the year and that the frantic pace of the capital markets business can be sustained. Looking at the quarter as a whole for the S&P 500 index, combining the actual results that have come out with estimates for the still-to-come companies, total earnings and revenues are now expected to be up +28.1% and +6.3%, respectively. The chart below provides a big-picture view of earnings on a quarterly basis. Please note that about half of the Q1 earnings growth is coming from the Finance sector. Excluding the Finance sector’s hefty contribution, Q1 earnings growth for the remainder of the index would be +14.5%. The chart below shows the overall earnings picture on an annual basis. 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.
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