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Earnings Estimates Falling Sharply

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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:

  • As we entered 2020, the market looked forward to earnings growth resuming in a meaningful way and accelerating into 2021. This was to follow the flattish showing in 2019 that reflected tough comparisons to the tax-cut driven earnings boost in 2018.
  • Estimates have come down sharply as a result of the Covid-19 pandemic, with 2020 earnings now expected to suffer a modest decline. Given the very hard-to-quantify impact of this pandemic at this stage, it is reasonable to expect estimates to come down more in the coming days and weeks.
  • Earnings growth is now expected to be firmly negative in the first two quarters of 2020, with growth currently expected to be roughly flat in Q3 and modestly positive in the last quarter of the year.
  • Total Q1 earnings or aggregate net income for the S&P 500 index are currently expected to be down -4.1% from the same period last year. This is down from close to +4% growth expected in early January. This is a bigger decline than we have seen in the comparable periods in recent quarters.
  • With many companies simply withdrawing their previously issued guidance in response to the pandemic, it is possible that we see an unusually busier pre-announcements period after companies officially close their books on their March-quarter reporting period.
  • Q1 earnings are expected to be below the year-earlier level for 10 of the 16 Zacks sectors, with double-digit declines at Autos (-57.5% earnings decline), Aerospace (-34.2%), Energy (-32.1%), Basic Materials (-26.4%), Transportation (-21.9%), Industrial Products (-14.5%), Conglomerates (-11.8%) and Consumer Discretionary (-11.5%).
  • Sectors with positive earnings growth in Q1 include Technology (+3.1% earnings growth), Construction (+7%), Business Services (+7.5%), and Medical (+3.3%).


  • For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -0.9% on +1.4% higher revenues. This is down from close to +8% at the start of the year.
  • The implied ‘EPS’ for the index, calculated using current 2020 P/E of 15.1X and index close, as of March 24h, is $160.23, down from $161.75 in 2019. Using the same methodology, the index ‘EPS’ works out to $180.85 for 2021 (P/E of 13.5X). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.


We are a couple of weeks away from the big banks really kicking off the 2020 Q1 reporting cycle, but a number of bellwether companies with fiscal quarters in February that get counted as part of the 2020 Q1 tally started reporting already. Many of these early reporters like Adobe (ADBE - Free Report) , FedEx (FDX - Free Report) , Nike (NKE - Free Report) and others are giving us an early read on how the Q1 earnings season will likely unfold.

Estimates for 2020 Q1 have come down, as the chart below clearly shows.





This is a bigger decline than we have been seeing in the comparable periods in other recent quarters, primarily reflecting the impact of the pandemic.

The negative revisions trend is broad based, with estimates for 15 of the 16 Zacks sectors coming down. The Utilities sector is the only that has experienced a very modest increase in estimates.

Sectors with the biggest negative revisions include Energy, Aerospace, Autos, Basic Materials, Transportation and Consumer Discretionary. To get a sense of the magnitude of negative revisions suffered by the Energy and Aerospace sectors, take a look at the recent revisions trend for ExxonMobil (XOM - Free Report) and Boeing (BA - Free Report) . Exxon is currently expected to report 28 cents in EPS for the March quarter, which is down from 65 cents a month ago. Similarly, Boeing is currently expected to lose $1.46 per share in Q1, down from estimates of $1.88 per share in positive earnings two months back.

Estimates for the next three quarters of 2020 have been coming down lately as well, with Q3 now barely in positive territory, as the chart below shows.





The chart below puts earnings and revenue growth expectations for full-year 2020 in the context of where growth has been in recent years and what is expected in the coming two years.






As you can see, full-year 2020 earnings growth is now in negative territory, with estimates likely to come down further we get greater visibility on the pandemic’s economic damage.

Analysts haven’t made a lot of changes to estimates for next year, currently showing a strong double-digit growth pace. But it hard to have a lot of confidence in these expectations in the current backdrop of macroeconomic uncertainty, with the U.S. and global economic growth taking a severe hit from the pandemic. A lot is riding on how the outbreak evolves in the coming weeks, which will determine the extent of the economic hit and the eventual turnaround.

In the best-case scenario, the bulk of the economic impact is confined to Q2, with growth resuming in Q3 and accelerating toward the end of the year. Driving this view is the expectation is that the outbreak peaks in the late-April/early-May timeframe and starts subsiding thereafter.

We will see if these expectations pan out, but the coming earnings season will be unusual in many ways.

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