For Immediate Release
Chicago, IL – March 4, 2021 – Zacks Director of Research Sheraz Mian says, “For the 492 S&P 500 companies that have reported Q4 results already, total earnings are up +3.0% from the same period last year on +3.0% higher revenues, with 79.3% beating EPS estimates and 75.2% beating revenue estimates."
An All-Around Improving Earnings Picture 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: For the 492 S&P 500 companies that have reported Q4 results already, total earnings are up +3.0% from the same period last year on +3.0% higher revenues, with 79.3% beating EPS estimates and 75.2% beating revenue estimates. This is a notably better performance from the same group of companies in the first three quarters of the year. Estimates for the current and coming quarters have steadily gone up, as companies reported better-than-expected Q4 results and guided higher. This helped sustain the positive estimate revisions trend that has been in place since. For the 97.3% of Retail sector market capitalization in the S&P 500 index that has reported results already, total earnings are up +12.0% on +14.1% higher revenues, with 72.4% beating EPS and 58.6% beating revenue estimates. The reported earnings and revenue growth rates drop to -4.4% and +8.2% once Amazon ( AMZN Quick Quote AMZN - Free Report) is excluded from the Q4 numbers. For the Tech sector, we now have Q4 results from 98.2% of the sector's total market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +21.2% on +14.8% higher revenues, with 87.5% beating EPS estimates and 87.5% beating revenue estimates. The Tech sector's Q4 earnings performance represents a notable improvement over what we have been seeing in other recent periods. Looking at Q4 as a whole, total earnings for the S&P 500 index are expected to be up +3.0% on +3.1% higher revenues. This is a notable improvement relative to the -11.3% earnings decline on flat revenues that was expected at the start of the Q4 earnings season and would follow back-to-back quarterly declines in the first three quarters of the year. Overall, 6 of the 16 Zacks sectors experienced earnings declines in Q4, with Transportation (-91.6% decline), Energy (-94.1%), Consumer Discretionary (-58.7%) and Aerospace (-136.9%) as the big decliners. For the Finance sector, Q4 earnings went up +13.8% from the same period last year on +1.2% higher revenues, which follows declines of -11.7% in 2020 Q3, - 45.3% in Q2, and -32.4% in Q1. For the Technology sector, Q4 earnings are expected to be up +21.2% on +14.7% higher revenues, which would follow +12.9% earnings growth in Q3. Other sectors with positive earnings growth in Q4 include Construction (+31.5% earnings growth), Autos (+170.1%), Medical (+11.8%), Basic Materials (28.1%), and Retail (+11.1%). Looking at the calendar-year picture for the S&P 500 index, earnings are on track to decline -16.7% on -2.8% lower revenues in 2020 and increase +28.4% on +9.0% higher revenues in 2021. For 2022, index earnings are expected to be up +15.3% on +6.8% higher revenues. The implied 'EPS' for the S&P 500 index, calculated using current 2020 P/E of 29.7X and index close, as of March 2nd, is $130.41, down from $156.60 in 2019. Using the same methodology, the index 'EPS' works out to $167.44 for 2021 (P/E of 23.1X) and $193.05 for 2022. The multiples have been calculated using the index's total market cap and aggregate bottom-up earnings for each year. For the small-cap S&P 600 index, we now have Q4 results for 532 index members or 88.5% of the index's total membership. Total earnings for these companies are down -1.4% from the same period last year on +0.4% higher revenues, with 67.5% beating EPS estimates and 75.0% beating revenue estimates. Looking at Q4 as a whole for the small-cap index, total earnings are projected to fall -1.6% on +0.1% higher revenues. This would follow the -6.2% decline on -4.9% lower revenues in Q3. For full-year 2020, the S&P 600 index is expected to experience a -28.8% decline in earnings on -9.4% lower revenues, with easy comps pushing earnings growth to +49.9% in 2021. Favorable Revision Trend
As we have consistently been pointing out since the start of the Q4 reporting cycle, the tone and substance of management guidance remained positive and reassuring, helping estimates for the current and coming quarters to climb.
The revisions have largely been stable over the last few weeks, as the reporting cycle has effectively come to an end (with only 8 S&P 500 members still to report). But we see a significant acceleration in the favorable revisions trend in the coming months on the back of a stronger-than-expected rebound in consumer and business spending as the ongoing vaccination effort gains pace. We strongly feel that current consensus estimates for 2021 GDP and earnings growth understate the full extent of the rebound.
The reporting focus lately has been on big-box retailers where results have been strong, with Q4 revenues at Home Depot (
HD Quick Quote HD - Free Report) , Lowe's ( LOW Quick Quote LOW - Free Report) and Target ( TGT Quick Quote TGT - Free Report) up +25.1%, +26.7%, and +21.1% from the year-earlier levels, respectively.
Unlike other traditional retailers that were deemed 'unessential' and largely remained closed during the pandemic, these companies remained open through the downturn and were big beneficiaries of the pandemic. The market's muted reaction to these otherwise strong numbers is likely reflective of the concern that the growth momentum will be hard to sustain in the post-pandemic period.
In terms of the Retail sector's scorecard, we now have Q4 results from 87.9% of the retailers in the S&P 500 index. Total Q4 earnings for these retailers are up +12.0% from the same period last year on +14.1% higher revenues, with 72.4% beating EPS estimates and 58.6% beating revenue estimates.
This is a weaker earnings growth pace and beats percentage than we saw from this same group of retailers in Q3. Please note that the group's strong Q4 earnings and revenue growth pace looks a lot less impressive once Amazon's strong numbers are excluded from the Retail sector numbers (the retail giant is part of the Zacks Retail sector).
The Earnings Big Picture
We remain positive in our earnings outlook, as we see the full-year 2021 growth picture steadily improving through the first half of the year as more of the population gets vaccinated.
We strongly feel that current consensus economic growth projections reflect learned experiences of economic recoveries from the last few recessions. We don't think that this recovery will follow this past pattern as this downturn was fundamentally different, as its epicenter was medical and not financial. As such, we see significant upside to current consensus GDP growth estimates for 2021, which drives our favorable earnings outlook for the year and beyond.
The flow of recent economic readings about the labor market, factory space and even retail sales suggest that activity levels have moderated in response to the ongoing surge in infections. But with the extraordinary vaccination effort already underway, it is reasonable to expect the pandemic getting under control towards the end of the first quarter of 2021.
As such, while growth in the current period (2020 Q4) will likely remain under pressure, we should expect the outlook to steadily improve. Beyond the Q4 earnings season, the outlook remains positive.
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