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: The picture that emerged from the Q1 earnings season was one of all-around strength and momentum, even though big slices of the economy are still dealing with the pandemic’s impacts.
Earnings and revenue growth for the 92% of S&P 500 members that have reported Q1 results (461 index members) are tracking above this group’s recent trend, including the pre-pandemic period. But even more importantly, the tone and substance of guidance is favorable, which is helping sustain the favorable revisions trend that has been in place since last Summer.
Total earnings for the 461 S&P 500 companies that have reported Q1 results are up +45.8% on +9.0% higher revenues, with 86.1% beating EPS estimates and 76.8% beating revenue estimates. The outsized earnings growth is largely due to very strong numbers from the Finance sector.
For the 64.7% of the Retail sector companies in the S&P 500 index that have reported Q1 results, total earnings and revenues are up +61.2% and +12.7%, respectively, with 90.9% beating EPS estimates and 81.8% beating top-line estimates. This is a notably better experience than we have seen from the group, even after accounting for Amazon’s blockbuster results.
Excluding the Finance sector’s strong growth, Q1 earnings growth for the remainder of the companies would be up +33.7% (vs. +45.9% with Finance) on +9.4% (vs. +9.0%) higher revenues, which is still the strongest growth for this cohort of companies in recent quarters.
For the Technology sector, we now have Q1 results from 86.9% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +56.0% from the same period last year on +24.8% higher revenues, with 93.4% of the companies beating EPS estimates and 95.1% beating revenue estimates.
Looking at 2021 Q1 as a whole, combining the results that have come out with estimates for the still-to-come companies (the ‘blended’ view), total S&P 500 earnings are now expected to be up +46.7% from the same period last year on +9.5% higher revenues; meaning the aggregate growth picture will not change much as the still-to-report companies report results.
The ‘blended’ Q1 total earnings are on track to reach a new all-time quarterly record, thanks to impressive results from Finance and Technology, the two largest earnings contributors to the S&P 500 index.
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 +58.4% on +17.0% higher revenues, as the year-earlier period represented the bottom of the Covid hit to earnings. The +58.4% earnings growth rate is up from +50.6% at the end of March and +41.6% at the start of January 2021.
Sectors with positive earnings growth in Q1 include: Finance (+98.3% earnings growth), Technology (+51.6%), Autos (+608.9%), Retail (+82.1%), Medical (+20.5%), Basic Materials (+80.4%), Construction (+58.0%), Industrial Products (+45.5%), Utilities (+3.8%), and Consumer Staples (+12.3%).
Currently, the only two sectors expected to see their earnings decline are Transportation (-156.3% earnings decline) and Consumer Discretionary (-3.3%).
Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +33.0% on +9.8% higher revenues in 2021 and increase +11.9% on +6.4% higher revenues in 2022. This would follow a decline of -13.1% in 2020 on -1.7% lower revenues.
The implied ‘EPS’ for the S&P 500 index, calculated using the current 2021 P/E of 22.9X and index close, as of May 18th, is $180.64, up from $135.85 in 2020. Using the same methodology, the index ‘EPS’ works out to $202.04 for 2022 (P/E of 20.4X). 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 545 index members or 90.7% of the index’s membership. Total earnings for these 545 index members are up +284.4% on +9.1% higher revenues, with 72.5% beating EPS estimates and 75.2% beating revenue estimates.
Positive revisions to estimates for 2021 Q2 and beyond is the part of the earnings story that stock market investors should find the most reassuring, as this provides the most convincing fundamental rationale for stocks to hold and build on their values. The chart below shows how estimates for the current period (2021 Q2) have evolved since early January. In most ‘normal’ periods, we will be seeing negative estimate revisions; meaning earnings estimates would be going down. We are seeing the opposite, with estimates going up, as the chart below shows. Please note that this is a replay of what we experienced in Q1 as well, though the pace of positive revisions is stronger. In fact, this trend of positive revisions started back last Summer as the U.S. economy started coming out of the pandemic-driven lockdowns. While the direction of revisions is the same, the pace and magnitude of positive revisions has only accelerated, a trend that we expect will gain further pace in the second half of the year. We are seeing the same trend at play in estimates for full-year 2021, as the chart below shows.
The chart below shows the same revisions trend at the index ‘EPS’ level since last Summer.
The most impressive aspect of this favorable revisions trend is that estimates are going up across the board for most sectors. Of the 16 Zacks sectors, estimates have gone up for 14 sectors since the start of the year, with the Energy, Basic Materials, Construction, Finance and Technology sectors enjoying the largest proportional increases in estimates. You can see this phenomenon in estimates for bellwether operators in a variety of sectors. Check out, for example, full-year 2021 EPS estimates for Dow ( DOW Quick Quote DOW - Free Report) , JPMorgan ( JPM Quick Quote JPM - Free Report) , Chevron ( CVX Quick Quote CVX - Free Report) and Alphabet ( GOOGL Quick Quote GOOGL - Free Report) and you will find that EPS estimates have gone up +80.2%, +22.7%, +61.4% and +27.3% over the past three months, respectively. The Earnings Big Picture The chart below provides a big-picture view of earnings on a quarterly basis.
The chart below shows the overall earnings picture on an annual basis.
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