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Target, Costco, Home Depot, Walmart and Amazon are part of Zacks Earnings Preview

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For Immediate Release

Chicago, IL – March 1, 2021 – releases the list of companies likely to issue earnings surprises. This week’s list includes Target Corporation (TGT - Free Report) , Costco Wholesale Corporation (COST - Free Report) , The Home Depot, Inc. (HD - Free Report) , Walmart (WMT - Free Report) and, Inc. (AMZN - Free Report) .

Market Shrugs Off Strong Retail Earnings

Earnings were hit hard by the Covid-19 pandemic, with each of the first three quarters of 2020 below the comparable quarters in 2019. The year-over-change was particularly dire in the June quarter when earnings for the S&P 500 index declined by almost a third from the year-earlier level.

The growth picture improved notably in 2020 Q3 when earnings declined by -7% and the expectation was that the last quarter of the year would show a comparable earnings decline. So, it’s a pleasant surprise that 2020 Q4 is on track to show +3.6% earnings growth when the pre-season expectation was for an -11% decline.

The chart below takes a big-picture view of quarterly earnings and revenue growth for the S&P 500 index that shows actual results for the last five quarters and current consensus estimates for the coming three periods, with 2020 Q4 highlighted in the middle.

The Q4 earnings season, which is now entering its final phase with just 18 S&P 500 companies still to report results, has been a very good one. Not only did an above-average proportion of companies beat consensus estimates, but guidance has been positive as well. And it is this favorable guidance that has been helping push estimates for the current and coming quarters higher, as we will show a little later in this note.

Earnings Season Scorecard (as of Friday, February 26th)

We now have Q4 results from 482 S&P 500 members or 96.4% of the index’s total membership. This week brings in results from more than 300 companies in total, including 15 S&P 500 members. The traditional Retail space will dominate this week’s line-up, as it has been in recent days, with operators like Target, Costco and others coming out with quarterly results.

It has been a strong showing from the Retail space in recent days, but the market has essentially shrugged solid results from the likes of Home Depot, Walmart and others. We saw something similar to the Amazon report earlier.

The thinking appears to be that the going will likely get tougher for these players in the coming quarters as the pandemic starts fading in the rearview mirror. These companies were deemed ‘essential’ during the lockdowns, which helped them capture an ever-growing share of consumer spending, resulting in strong top-line growth through the pandemic quarters – Home Depot’s Q4 sales were up +25.1% while the same for Wal-Mart represented a +7.3% rise. It is reasonable to suspect that the market will likely behave no differently for this week’s reports from Target and Costco.

In terms of the Retail sector scorecard, we now have Q4 results from 78.8% of the retailers in the S&P 500 index. Please note that the Zacks Retail sector also includes the online vendors like Amazon, in addition to traditional brick-and-mortar operators like Target and Nordstrom.

Total Q4 earnings for the retailers that have reported already are up +11.4% from the same period last year on +14.1% higher revenues, with 73.1% beating EPS estimates and 61.5% beating revenue estimates.

The Q4 beats percentages of 73.1% and 61.5% for EPS and revenues for the sector is below the Q4 aggregates for the S&P 500 index as well.

The high Q4 earnings and revenue growth for the sector is due to Amazon’s impressive numbers. Excluding Amazon’s contribution, the Q4 growth picture is a lot less impressive.

As noted earlier, we now have results from 482 S&P 500 members or 96.4% of the index’s total membership. Total Q4 earnings (or aggregate net income) for these 482 companies are up +3.5% from the same period last year on+2.9% higher revenues, with 79.7% beating EPS estimates and 75.5% beating revenue estimates.

The two sets of comparison charts below put the Q4 results from these 482 index members in a historical context, which should give us a sense how the Q4 earnings season is tracking at this stage relative to other recent periods.

The Q4 results from these index members compare favorably to what we had seen from the same group of companies in the recent past.

Not only are a historically high proportion of the reporting companies beating consensus EPS and revenue estimates, but they are also providing positive and reassuring guidance that is helping sustain the positive revisions trend that has been in place since July 2020.

We expect this positive revisions trend to stall over the coming weeks as we enter the quiet period as the 2020 Q4 reporting cycle slows to a trickle and ahead of the start of the 2021 Q1 reporting season in mid-April. But we strongly believe that the overall trend will not only remain in place, but actually gain pace over the coming months.

The Overall Earnings Picture

Looking at Q4 as a whole, combining the actual results from 482 index members with estimates for the still-to-come companies, total earnings are now expected to up +3.6% on +3% higher revenues. This positive growth follows three back-to-back quarters of declines for S&P 500 earnings.

Sectors with the weakest growth remain the same ones that struggled in the first three quarters of the year, including Transportation (-91.6% earnings decline), Energy (-94.1%), and Consumer Discretionary (-58.7%). Q4 earnings for the Aerospace sector declined by -136.9%, largely reflecting Boeing’s weak quarterly release.

On the positive side, Q4 earnings went up +170.1% at Autos, +31.5% at Construction, +28.1% at Basic Materials, +14.4% at Finance, +21.1% at Technology, +15.2% at Medical and +11.3% at the Retail sector.

Excluding Finance’s help, Q4 earnings for the rest of the S&P 500 index would be up only +0.9%, instead of up +3.6% as a whole. Q4 Earnings decline at the rate of -3.2%, instead of up +3.6% once Technology’s strong showing is excluded.

Growth is expected to resume this year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +28.1% relative to 2020 estimates. On an index ‘EPS’ basis, this works out to $167.24, up from $130.53 in 2020 and $156.62 in 2019, with the figure for 2022 currently expected at $192.96 per index ‘share.’

Estimates for 2021 have been steadily going up over the last six months.

As we mentioned earlier in the context of positive revisions to 2021 Q1 estimates, we envision the trend at play for full-year estimates, which we expect will continue going up. We strongly feel that there is significant room for further positive revisions as the overall macro backdrop stabilizes and gets clearer, particularly in the second half of the year.

For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> A Closer Look At Retail Sector Earnings

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