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Q2 Earnings Season to Provide Coronavirus Earnings Clarity
The Covid-19 pandemic and the associated shelter-in-place policies brought the U.S. economy to a standstill in April and May, with something resembling ‘normal’ activities only now getting underway in large parts of the country.
Recent economic and labor market readings show that the pandemic’s most horrendous effects on the economy have started easing. The hope is that since the U.S. economy entered the pandemic in fairly good shape, we will get back to stronger economic growth in the coming months.
While there is broad agreement in the market over this general view of the recovery, there is disagreement over the pace and magnitude of recovery. It is this aspect of the recovery debate that morphs into the letter shape that the recovery will take (the so-called ‘V’, ‘U’, ‘W’, or ‘L’ shapes).
This debate about economic recovery has implications for corporate earnings, which along with interest rates, drives stock prices in the long run.
Earnings estimates fell sharply as the pandemic’s full effects became clear, with full-year 2020 earnings estimate dropping from a roughly +8% growth in early January to a decline of -24.1% today. But the negative revisions trend has eased in recent weeks, which can be interpreted as reflecting the effects of the economy’s reopening. We will know more in the coming weeks as the Q2 earnings season gets underway and management teams share what they see on the ground in their respective industries.
Management teams were completely clueless back in April when they reported Q1 results, with most withdrawing their previously issued public guidance. It is reasonable to expect relatively more clarity this time around, which should help anchor expectations for the second half and beyond.
Growth is expected to resume next year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +26.8% relative to 2020 estimates. But as strong as next year’s growth estimate is, total 2021 index earnings would still haven’t gotten back to pre-Covid levels.
In other words, S&P 500 earnings in 20201 are currently expected to be modestly below the 2019 level.
These numbers translate to an index ‘EPS’ of $155.18 in 2021 vs. $122.36 in 2020 and $161.21 in 2019.
Q2 Earnings Season Gets Underway
We mentioned earlier, the Q2 reporting cycle will (unofficially) get underway with the JPMorgan report on July 14th. But from our perspective, the Q2 earnings season has gotten underway already, with the Adobe report on Thursday, June 11th, as the third earnings release that we have results from 7 S&P 500 members already out.
Nike, Accenture and Darden are among the 5 index members on deck to report results this week. By the time we JPMorgan reports its Q2 results on July 14th, we will have seen such results from almost two dozen S&P 500 members.
For the 7 index members that have reported already, total Q2 earnings or aggregate net income is down -44.3% on -2.4% lower revenues, with 71.4% (5 out of 7) beating EPS estimates and 28.6% (2 out of 7) beating revenue estimates.
15 of the 16 Zacks sectors are expected to have lower earnings relative to the year-earlier period, with 4 of the 16 sectors expected to lose money in Q2 (decline rates in excess of -100%). These three sectors are unsurprisingly Energy (Q2 earnings expected to decline -138.5%), Transportation (-152.9%), Autos (-224.8%) and Consumer Discretionary (-109.1%).
Finance and Technology, the two biggest earnings contributors to the S&P 500 index, are expected to show Q2 earnings declines of -38.8% and -13.5%. In fact, Tech’s -13.3% decline is the smallest earnings decline of the 15 sectors that will experience declines in Q2 (Utilities is the only sector that is expected to show a modest growth).
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Q2 Earnings Season Preview
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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JPMorgan, Adobe, Nike, Accenture and Darden are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – June 22, 2020 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes JPMorgan (JPM - Free Report) , Adobe (ADBE - Free Report) , Nike (NKE - Free Report) , Accenture (ACN - Free Report) and Darden (DRI - Free Report) .
Q2 Earnings Season to Provide Coronavirus Earnings Clarity
The Covid-19 pandemic and the associated shelter-in-place policies brought the U.S. economy to a standstill in April and May, with something resembling ‘normal’ activities only now getting underway in large parts of the country.
Recent economic and labor market readings show that the pandemic’s most horrendous effects on the economy have started easing. The hope is that since the U.S. economy entered the pandemic in fairly good shape, we will get back to stronger economic growth in the coming months.
While there is broad agreement in the market over this general view of the recovery, there is disagreement over the pace and magnitude of recovery. It is this aspect of the recovery debate that morphs into the letter shape that the recovery will take (the so-called ‘V’, ‘U’, ‘W’, or ‘L’ shapes).
This debate about economic recovery has implications for corporate earnings, which along with interest rates, drives stock prices in the long run.
Earnings estimates fell sharply as the pandemic’s full effects became clear, with full-year 2020 earnings estimate dropping from a roughly +8% growth in early January to a decline of -24.1% today. But the negative revisions trend has eased in recent weeks, which can be interpreted as reflecting the effects of the economy’s reopening. We will know more in the coming weeks as the Q2 earnings season gets underway and management teams share what they see on the ground in their respective industries.
Management teams were completely clueless back in April when they reported Q1 results, with most withdrawing their previously issued public guidance. It is reasonable to expect relatively more clarity this time around, which should help anchor expectations for the second half and beyond.
Growth is expected to resume next year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +26.8% relative to 2020 estimates. But as strong as next year’s growth estimate is, total 2021 index earnings would still haven’t gotten back to pre-Covid levels.
In other words, S&P 500 earnings in 20201 are currently expected to be modestly below the 2019 level.
These numbers translate to an index ‘EPS’ of $155.18 in 2021 vs. $122.36 in 2020 and $161.21 in 2019.
Q2 Earnings Season Gets Underway
We mentioned earlier, the Q2 reporting cycle will (unofficially) get underway with the JPMorgan report on July 14th. But from our perspective, the Q2 earnings season has gotten underway already, with the Adobe report on Thursday, June 11th, as the third earnings release that we have results from 7 S&P 500 members already out.
Nike, Accenture and Darden are among the 5 index members on deck to report results this week. By the time we JPMorgan reports its Q2 results on July 14th, we will have seen such results from almost two dozen S&P 500 members.
For the 7 index members that have reported already, total Q2 earnings or aggregate net income is down -44.3% on -2.4% lower revenues, with 71.4% (5 out of 7) beating EPS estimates and 28.6% (2 out of 7) beating revenue estimates.
15 of the 16 Zacks sectors are expected to have lower earnings relative to the year-earlier period, with 4 of the 16 sectors expected to lose money in Q2 (decline rates in excess of -100%). These three sectors are unsurprisingly Energy (Q2 earnings expected to decline -138.5%), Transportation (-152.9%), Autos (-224.8%) and Consumer Discretionary (-109.1%).
Finance and Technology, the two biggest earnings contributors to the S&P 500 index, are expected to show Q2 earnings declines of -38.8% and -13.5%. In fact, Tech’s -13.3% decline is the smallest earnings decline of the 15 sectors that will experience declines in Q2 (Utilities is the only sector that is expected to show a modest growth).
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Q2 Earnings Season Preview
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.