Breaking Down the Positive Earnings Picture

By Zacks5 days ago

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Note: The following is an excerpt from this weeks Earnings Trendsreport. 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:

  • The overall earnings picture continues to improve, a trend that we strongly feel will accelerate in the Summer months as signs of a sharp economic rebound emerge.
  • Total 2021 Q1 earnings are currently expected to be up +20.6% from the same period last year on +5.6% higher revenues, with a combination of easy comparisons and strong gains in a number of sectors giving us the growth rebound.
  • Estimates for the current and coming quarters have steadily moved up, a trend that has been in place since last Summer. We expect this favorable revisions trend to accelerate in the coming months as we start looking past the pandemic.
  • The positive revisions trend is broad-based, with Q1 estimates for 10 of the 16 Zacks sectors going up over the last three months and estimates for the Autos and Energy sectors more than doubling over that time period.
  • Other sectors experiencing positive estimate revisions include Basic Materials, Construction, Industrial Products, Technology and Finance.
  • On the negative side, estimates have come down the most for the Transportation sector, with the Consumer Discretionary and Aerospace sectors also suffering estimate cuts.
  • The sectors with positive earnings growth in Q1 include: Finance (+50.5% earnings growth), Technology (+22.2%), Autos (+203.1%), Retail (+41.4%), Medical (+16.5%), Basic Materials (+65.7%), Construction (+37.4%), Industrial Products (+23.0%), Utilities (+3.6%), and Consumer Staples (+1.8%).
  • The weakest earnings growth in Q1 is expected to come from the Transportation (-160.8% earnings decline) and Consumer Discretionary (-36.2%) sectors.
  • The Energy sector earnings are now expected to decline only -0.4% from the year-earlier level, following strong positive revisions over the last few months.
  • For the Finance sector, Q1 earnings are expected to be up +50.5% on +1.9% higher revenues, as the groups year-earlier results were dragged down by big loan-loss reserves at the banks as the pandemic got underway.
  • For the Technology sector, Q1 earnings are expected to be up +22.2% from the same period last year on +17.3% higher revenues, a clear case of strong growth and not easy comparisons.
  • For the 18 S&P 500 members with fiscal quarters ending in February that have reported results already, total earnings and revenues are up +17.9% and +7.5%, respectively, with 83.3% beating EPS estimates and 88.9% topping revenue estimates. All these fiscal February-quarter companies get counted as part of our March-quarter tally.
  • Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +25.4% on +8.2% higher revenues in 2021 and increase +14.4% on +6.4% higher revenues in 2022. This would follow a decline of -13.1% in 2020 on -1.8% lower revenues.
  • The implied EPS for the S&P 500 index, calculated using the current 2021 P/E of 23.9X and index close, as of April 6th, is $170.28, up from $135.80 in 2020. Using the same methodology, the index EPS works out to $194.84 for 2022 (P/E of 20.9X). The multiples have been calculated using the indexs total market cap and aggregate bottom-up earnings for each year.

Rising Earnings Estimates

The favorable revisions trend that has been pushing estimates higher since last July remains in place, as the revisions trend for 2021 Q1 shows below.

Estimates have gone up the most for the Energy and Autos sectors, with Q1 earnings estimates for these two sectors more than doubling over the last three months. You can see this pronounced positive revisions trend in estimates for Exxon (XOM), Chevron (CVX), Ford (F) and others from these two sectors.

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