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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 Q4 earnings for the 285 S&P 500 members that have reported results are up +4.4% from the same period last year on +3.5% higher revenues, with 81.1% beating EPS estimates and 64.6% beating revenue estimates.
For the Tech sector, we now have Q4 results for 74.7% of the sector’s market capitalization in the index. Total earnings for these Tech companies are up +21.9% from the same period last year on +6.4% higher revenues, with 88.6% beating EPS estimates and 72.7% beating revenue estimates.
The Tech sector is solely responsible for keeping the Q4 earnings growth pace in the positive territory. Had it not been for the Tech sector's strong growth, the +4.4% earnings growth for the companies that have reported already drops to a decline of -2.7%.
For the Magnificent 7 companies, combining the actual results for the 6 companies that have come out with estimates for the one still-to-come company, total Q4 earnings are on track to be up +48.7% from the same period last year on +14.5% higher revenues.
The quarterly results from the Magnificent 7 companies reconfirm why these companies have been market leaders over the past year. Except for Tesla (TSLA - Free Report) , each of the other 6 companies has a market capitalization in excess of a trillion dollars, with Microsoft (MSFT - Free Report) at more than $3 trillion and Apple (AAPL - Free Report) right in that vicinity. But it isn’t just their size; they are very profitable and still enjoying plenty of growth.
We still have Nvidia’s (NVDA - Free Report) report to come, but combining estimates for Nvidia with the actual results for the other 6 members of the group, total Mag 7 earnings for Q4 are on track to increase +48.5% from the same period last year on +14.5% higher revenues, which would follow the group’s +54.2% higher earnings on +12.9% higher revenues in 2023 Q3.
You can see the group’s earnings and revenue growth picture in the chart below.
Image Source: Zacks Investment Research
The Mag 7 companies combined are on track to account for 23% of all S&P 500 earnings in Q4; they account for 29.3% of the index’s total market capitalization. Had these 7 stocks been a sector, they would have the second biggest weight in the S&P 500 index, behind the Tech sector, which currently accounts for 37.3%. The Finance sector, which at one time was the biggest sector in the index, currently accounts for 12%.
Importantly, the Mag 7 earnings outlook is steadily improving. The +30.4% earnings growth expected for the group in 2024 Q1 is up from +25.7% last week, with estimates for the following quarters also going up.
The chart below shows the group’s growth picture on an annual basis.
Image Source: Zacks Investment Research
Beyond Mag 7, Q4 earnings for the S&P 500 index are currently expected to be up +4.9% above the year-earlier period on +3.1% higher revenues. This would follow the +3.8% increase in index earnings in 2023 Q3 on +2.3% higher revenues.
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the growth picture is expected to steadily improve over the next few quarters.
Below, we show the overall earnings picture for the S&P 500 index on an annual basis.
Image Source: Zacks Investment Research
Given the expected moderation in the U.S. economy’s growth trajectory due to the cumulative effects of Fed tightening, these estimates likely need to come down. But the +4.7% revenue growth expectation is hardly aggressive, considering that the U.S. economy produced a nominal GDP growth rate in excess of +6% last year.
The rest of the 2024 earnings growth is coming from margin expansion, with 2024 net margins for the index going up to 12.4% from last year’s 11.7%. Embedded in this margin expectation is the view that the inflation cycle has run its course and the associated cost pressures that weighed on profitability over the last two years ease.
Please note that this year's expected margin of 12.4% for the index takes this key metric to where it was in 2021. We don’t see this margin (or revenue) outlook as unreasonable or out-of-sync with the economic ground reality.
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Q4 Earnings: Tech Sector Back in Growth Mode
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:
The quarterly results from the Magnificent 7 companies reconfirm why these companies have been market leaders over the past year. Except for Tesla (TSLA - Free Report) , each of the other 6 companies has a market capitalization in excess of a trillion dollars, with Microsoft (MSFT - Free Report) at more than $3 trillion and Apple (AAPL - Free Report) right in that vicinity. But it isn’t just their size; they are very profitable and still enjoying plenty of growth.
We still have Nvidia’s (NVDA - Free Report) report to come, but combining estimates for Nvidia with the actual results for the other 6 members of the group, total Mag 7 earnings for Q4 are on track to increase +48.5% from the same period last year on +14.5% higher revenues, which would follow the group’s +54.2% higher earnings on +12.9% higher revenues in 2023 Q3.
You can see the group’s earnings and revenue growth picture in the chart below.
Image Source: Zacks Investment Research
The Mag 7 companies combined are on track to account for 23% of all S&P 500 earnings in Q4; they account for 29.3% of the index’s total market capitalization. Had these 7 stocks been a sector, they would have the second biggest weight in the S&P 500 index, behind the Tech sector, which currently accounts for 37.3%. The Finance sector, which at one time was the biggest sector in the index, currently accounts for 12%.
Importantly, the Mag 7 earnings outlook is steadily improving. The +30.4% earnings growth expected for the group in 2024 Q1 is up from +25.7% last week, with estimates for the following quarters also going up.
The chart below shows the group’s growth picture on an annual basis.
Image Source: Zacks Investment Research
Beyond Mag 7, Q4 earnings for the S&P 500 index are currently expected to be up +4.9% above the year-earlier period on +3.1% higher revenues. This would follow the +3.8% increase in index earnings in 2023 Q3 on +2.3% higher revenues.
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the growth picture is expected to steadily improve over the next few quarters.
Below, we show the overall earnings picture for the S&P 500 index on an annual basis.
Image Source: Zacks Investment Research
Given the expected moderation in the U.S. economy’s growth trajectory due to the cumulative effects of Fed tightening, these estimates likely need to come down. But the +4.7% revenue growth expectation is hardly aggressive, considering that the U.S. economy produced a nominal GDP growth rate in excess of +6% last year.
The rest of the 2024 earnings growth is coming from margin expansion, with 2024 net margins for the index going up to 12.4% from last year’s 11.7%. Embedded in this margin expectation is the view that the inflation cycle has run its course and the associated cost pressures that weighed on profitability over the last two years ease.
Please note that this year's expected margin of 12.4% for the index takes this key metric to where it was in 2021. We don’t see this margin (or revenue) outlook as unreasonable or out-of-sync with the economic ground reality.