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Zacks Earnings Trends Highlights: Amazon, Alphabet, Microsoft, Facebook and Apple
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For Immediate Release
Chicago, IL – June 25, 2020 – Zacks Director of Research Sheraz Mian says, "Total S&P 500 earnings are expected to decline -44.1% in Q2 on -10.9% lower revenues, with the Utilities sector as the only one expected to have modestly higher earnings relative to the year-earlier period."
Previewing Q2 Earnings Season
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:
Earnings estimates fell sharply in the immediate aftermath of the Covid-19 pandemic, with full-year 2020 estimates now almost a quarter below the year-earlier level and even 2021 estimates now modestly below the 2019 level.
The massive negative revisions trend of the last three months appears to have eased in recent days, but that could change as companies start reporting June-quarter results next month and provide guidance.
Total S&P 500 earnings are expected to decline -44.1% in Q2 on -10.9% lower revenues, with the Utilities sector as the only one expected to have modestly higher earnings relative to the year-earlier period.
The brunt of the Covid-19 earnings hit is expected to be in Q2 2020, but declines are expected to continue in the second half of the year as well, though the pace of declines decelerates significantly from the Q2 level.
The four sectors that are expected to lose money in Q2 (year-over-year declines of -100% or more) are Energy (-139.4% earnings decline), Autos (-226.1%), Transportation (-151.2%) and Consumer Discretionary (-109.1%).
Other sectors expected to suffer big earnings declines in Q2 include Conglomerates (-73.3%), Aerospace (-61.0%), Basic Materials (-57.3%), Industrial Products (-52.9%), Retail (-42.1%) and Finance (-39.0%).
The Technology sector stands out for having a lower earnings decline in Q2 relative to other sectors, with total earnings for the sector expected to decline -13.5% from the year-earlier period on -1.2% lower revenues.
For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -24.2% on -5.7% lower revenues. This is down from close to +8% growth expected at the start of the year. For reference, S&P 500 earnings declined -19.1% in 2008 and -3.4% in 2009, though that was admittedly a different type of downturn.
Growth arrives next year, thanks to easy comparisons, but the dollar level of earnings in 2021 will still be below the 2019 level.
The implied ‘EPS’ for the index, calculated using current 2020 P/E of 25.6X and index close, as of June 23rd, is $122.20, down from $161.18 in 2019. Using the same methodology, the index ‘EPS’ works out to $155.14 for 2021 (P/E of 20.2X), modestly below the 2019 level ($161.18). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
Please note that while full-year 2021 earnings for the S&P 500 index are currently expected to be up +27.0% from the 2020 level, the absolute dollar amount of 2021 earnings estimates remain below the 2019 level.
For the small-cap S&P 600 index, total Q2 earnings are projected to be down -85.5% from the same period last year on -15.9% lower revenues. This would follow an earnings decline of -82.1% in Q1 on -7.6% lower revenues.
While the Covid-19 driven lockdowns have started to ease in different parts of the country, the pandemic’s economic and earnings impact will remain with us for a while. In fact, our analysis of consensus earnings estimates shows that overall profitability for the S&P 500 index will not go back to pre-Covid level even in 2021, with major sectors like Energy, Transportation, Consumer Discretionary, Industrial Products and even Finance expected to earn less in 2021 than they did in 2019.
The Covid-19 earnings impact is not uniformly distributed across all sectors, with Technology and Medical expected to perform reasonably well. The earnings declines for the Technology and Medical sectors this year are very modest and these sectors are expected to recoup those declines very quickly. As a result, 2021 earnings for the Tech and Medical sectors are expected to be up +8.6% and +12.6% over the 2019 levels, respectively.
No doubt, stocks in these spaces have been standout performers in the market’s rebound from the March 23rd lows. The strong performance from some of the largest Technology companies during the pandemic is an acknowledgement of these companies’ earnings power.
Five S&P 500 companies – Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) , Facebook and Apple (AAPL - Free Report) – now account for 22.5% of the index’s total market capitalization. This is significantly above these companies’ earnings contribution to the index’s total, expected to be 14.5% of the total this year. But this earnings contribution is up from 10.5% in 2019.
Unlike the level of earnings, the rate of change on a year-over-year basis will turn positive next year in a major way.
Economic readings in recent days for May clearly show that activity levels improved markedly from the April levels, with the bottom somewhere in April. The hope is that this steady improving trend will continue in the coming months as well, even though the underlying healthcare issue is still very much with us.
In the best-case scenario, the bulk of the economic impact is confined to Q2, with growth stabilizing in Q3 and accelerating toward the end of the year. Driving this view is the expectation is that not only has the outbreak peaked already, but we are now likely better ‘trained’ to navigate it.
We will see if these expectations pan out.
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Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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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Zacks Earnings Trends Highlights: Amazon, Alphabet, Microsoft, Facebook and Apple
For Immediate Release
Chicago, IL – June 25, 2020 – Zacks Director of Research Sheraz Mian says, "Total S&P 500 earnings are expected to decline -44.1% in Q2 on -10.9% lower revenues, with the Utilities sector as the only one expected to have modestly higher earnings relative to the year-earlier period."
Previewing Q2 Earnings Season
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:
While the Covid-19 driven lockdowns have started to ease in different parts of the country, the pandemic’s economic and earnings impact will remain with us for a while. In fact, our analysis of consensus earnings estimates shows that overall profitability for the S&P 500 index will not go back to pre-Covid level even in 2021, with major sectors like Energy, Transportation, Consumer Discretionary, Industrial Products and even Finance expected to earn less in 2021 than they did in 2019.
The Covid-19 earnings impact is not uniformly distributed across all sectors, with Technology and Medical expected to perform reasonably well. The earnings declines for the Technology and Medical sectors this year are very modest and these sectors are expected to recoup those declines very quickly. As a result, 2021 earnings for the Tech and Medical sectors are expected to be up +8.6% and +12.6% over the 2019 levels, respectively.
No doubt, stocks in these spaces have been standout performers in the market’s rebound from the March 23rd lows. The strong performance from some of the largest Technology companies during the pandemic is an acknowledgement of these companies’ earnings power.
Five S&P 500 companies – Amazon (AMZN - Free Report) , Alphabet (GOOGL - Free Report) , Microsoft (MSFT - Free Report) , Facebook and Apple (AAPL - Free Report) – now account for 22.5% of the index’s total market capitalization. This is significantly above these companies’ earnings contribution to the index’s total, expected to be 14.5% of the total this year. But this earnings contribution is up from 10.5% in 2019.
Unlike the level of earnings, the rate of change on a year-over-year basis will turn positive next year in a major way.
Economic readings in recent days for May clearly show that activity levels improved markedly from the April levels, with the bottom somewhere in April. The hope is that this steady improving trend will continue in the coming months as well, even though the underlying healthcare issue is still very much with us.
In the best-case scenario, the bulk of the economic impact is confined to Q2, with growth stabilizing in Q3 and accelerating toward the end of the year. Driving this view is the expectation is that not only has the outbreak peaked already, but we are now likely better ‘trained’ to navigate it.
We will see if these expectations pan out.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
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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.