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What Will Q2 Earnings Season Show?

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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:

  • Total Q2 earnings for the S&P 500 index are expected to be up +60.5% from the same period last year on +17.9% higher revenues, which would follow the +49.0% earnings growth on +8.9% higher revenues in 2021 Q1.
  • Given the magnitude of positive earnings surprises we saw in the preceding reporting cycle and the persistent positive revisions to earnings estimates, we expect the final Q2 earnings growth tally to be significantly higher than the currently expected +60.5%. 
  • A big part of the strong Q2 earnings growth is easy comparisons to the year-earlier period that represented the bottom of the Covid-19 earnings impact. But Q2 estimates also reflect genuine growth, with total index earnings expected to be up +8.8% from the pre-Covid 2019 Q2 period.
  • Total 2021 Q2 earnings for 9 of the 16 Zacks sectors are expected to be up from the pre-Covid 2019 Q2 period, including Technology (up +31.5%), Basic Materials (+71.5%), Medical (+21%), Retail (+24.6%), Construction (+52%).
  • Sectors whose 2021 Q2 earnings are expected to remain below the comparable 2019 period include Transportation (down -69.1%), Consumer Discretionary (-51.4%), Autos (-66.3%) and Energy (-13.7%).
  • Estimates for Q2 and beyond have been steadily going up, with the current +60.5% earnings growth rate up from +50.6% at the end of March and +41.6% at the start of January 2021.
  • Companies with fiscal quarters ending in May, which we count as part of the Q2 tally, have started reporting already. Thus far, we have seen such results from 3 S&P 500 members.
  • Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +34.9% on +10.5% higher revenues in 2021 and increase +11.2% on +6.3% 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 23.1X and index close, as of June 15th, is $183.26, up from $135.83 in 2020. Using the same methodology, the index ‘EPS’ works out to $203.78 for 2022 (P/E of 20.8X). The multiples have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.


We continue to believe that positive revisions to estimates 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 onto and build onto 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:

Zacks Investment Research

Please note that this is a replay of what we experienced in Q1 as well, though the pace of positive revisions is stronger for Q2 and beyond. In fact, this trend of positive revisions started back last summer as the U.S. economy started coming out of 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:

Zacks Investment Research

The chart below shows the same revisions trend at the index ‘EPS’ level since last summer:

Zacks Investment Research

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 - Free Report) , JPMorgan (JPM - Free Report) , Chevron (CVX - Free Report) and Alphabet (GOOGL - Free Report) and you will find that EPS estimates have gone up +79.6%, +24.2%, +9.1% and +27.2% over the past three months, respectively.

The Big Picture on Earnings

The chart below provides a big-picture view of earnings on a quarterly basis:

Zacks Investment Research

The chart below shows the overall earnings picture on an annual basis, with the growth momentum expected to continue:

Zacks Investment Research

We remain positive in our earnings outlook, as we see the full-year 2021 growth picture steadily improving, with the aforementioned revisions trend accelerating in the back half of the year.

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