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:
With the bulk of the Q2 earnings season now behind us, we can now say with full confidence that the earnings picture has not been this good in a long time.
The notable positives in the Q2 reporting cycle include broad-based strength, with the aggregate quarterly total on track to reach a new all-time record, impressive momentum on the revenue side and continued positive estimate revisions for the current period (2021 Q3) and beyond.
For the 466 S&P 500 members that have reported Q2 results already, total earnings are up +97.8% on +25.8% higher revenues, with 86.9% beating EPS estimates and 86.9% topping revenue estimates.
While the outsized earnings growth pace is mostly due to easy comparisons, primarily in the Finance sector, the performance on the revenue front (growth rate as well as beats percentage) is tracking above what we have been seeing in other recent periods.
For the Retail sector, we now have Q2 results from 93.8% of the sector’s market cap in the S&P500 index. Total earnings for these retailers are up +44.6% from the same period last year on +14.3% higher revenues, with 91.7% beating EPS estimates and 95.8% beating revenue estimates. This is a much stronger showing from the retailers than we have seen from the group in other recent periods.
For the Tech sector, we now have Q2 results from 87.6% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +65.7% from the same period last year on +25.7% higher revenues, with 96.8% beating EPS estimates and 93.7% beating revenue estimates.
Looking at Q2 as a whole, combining the actual results for the 466 index members that have reported with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +93.5% from the same period last year on +25.1% higher revenues, with the growth rate steadily going up as companies report better-than-expected results.
Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +42.3% on +12.8% higher revenues in 2021 and increase +9.4% on +6.6% higher revenues in 2022. This would follow an earnings decline of -13.1% on -1.7% lower revenues in 2020.
The implied ‘EPS’ for the S&P 500 index, calculated using the current 2021 P/E of 23.0X and index close, as of August 17th, is $193.03, up from $135.64 in 2020. Using the same methodology, the index ‘EPS’ works out to $211.14 for 2022 (P/E of 21.1X). The multiples have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
The earnings focus lately has been on retailers and the numbers from that space are as strong and impressive as we have been seeing consistently from other sectors in the Q2 reporting cycle. We have yet to see a lot of department-store results at this stage, but if the big-box reports from Walmart ( WMT Quick Quote WMT - Free Report) , Target ( TGT Quick Quote TGT - Free Report) , Home Depot ( HD Quick Quote HD - Free Report) and Lowe’s ( LOW Quick Quote LOW - Free Report) provides any useful read-through about the state of the consumer, then we should expect strong numbers from those operators as well. The market’s varied reaction to the big-box results isn’t so much a function of the quality of the reports, but rather how these stocks had performed in the run-up to the results. The state of the consumer remains strong and these retailers have refined their business models to capitalize on this favorable backdrop. The long-feared drop off in growth from these big-box operators in the post-Covid world has yet to fully materialize, though rising costs from a number of areas including inputs, freight, payroll and supply-chain disruptions cast doubts about the margins outlook. That said, these headwinds are hardly unique to the retail space, as we heard consistently from management teams across different sectors. We discussed the Retail sector’s scorecard in greater detail in the body of the report. But suffice it to say, the sector’s Q2 results have been strong, following the trends elsewhere. The Earnings Big Picture Looking past the Q2 earnings season, the expectation is for earnings growth of +26.1% on +13.4% higher revenues in 2021 Q3. Estimates for the current period (2021 Q3) have gone up, as the chart below shows. Image Source: Zacks Investment Research Please note that while the Q3 estimate revisions trend remains positive and in-line with what we have been seeing since last Summer, it is not as strong as we had seen in the comparable periods of the preceding two quarters. In fact, the growth pace has modestly ticked down in recent days. It might be nothing more than a reflection of analysts’ tentativeness about the impact of the ongoing Delta variant, but it is nevertheless something we will be closely monitoring in the days ahead. The chart below provides a big-picture view of earnings on a quarterly basis. Image Source: Zacks Investment Research The chart below shows the overall earnings picture on an annual basis, with the growth momentum expected to continue. Image Source: Zacks Investment Research We remain positive in our earnings outlook, as we see the full-year 2021 growth picture steadily improving, with the revisions trend accelerating in the back half of the year.