A Positive Earnings Backdrop

By Zacks10 days ago

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 picture emerging from the Q1 earnings season is one of all-around strength and momentum, even though big slices of the economy are still dealing with the pandemics effects.
  • Earnings and revenue growth for the 69% of S&P 500 members that have reported Q1 results (343 index members) are tracking above this groups recent trend, including the pre-pandemic period. But even more importantly, the tone and substance of guidance is favorable, which is helping sustain the favorable revisions trend that has been in place since last Summer.
  • Total earnings for the 343 S&P 500 companies that have reported Q1 results are up +49.2% on +10.6% higher revenues, with 87.5% beating EPS estimates and 78.1% beating revenue estimates. The outsized earnings growth is largely due to very strong numbers from the Finance sector.
  • For the 92.0% of the Finance sectors market capitalization that have reported Q1 results, total earnings and revenues are up +112.0% and +8.2%, respectively, with 90.9% beating EPS estimates and 75.3% beating top-line estimates. A combination of easy comparisons and unusually strong capital markets business drove the groups strong results.
  • Excluding the Finance sectors strong growth, Q1 earnings growth for the remainder of the companies that have reported results would be up +34.8% (vs. +49.2%) on +10.6% (vs. +11.1%) higher revenues, which is still the strongest growth for this cohort of companies in recent quarters.
  • For the Technology sector, we now have Q1 results from 79.5% of the sectors total market capitalization in the S&P 500 index. Total earnings for these Tech companies are up +56.7% from the same period last year on +23.3% higher revenues, with 95.3% of the companies beating EPS estimates and 93.0% beating revenue estimates.
  • Looking at 2021 Q1 as a whole, combining the results that have come out with estimates for the still-to-come companies (the blended view), total S&P 500 earnings are now expected to be up +44.1% from the same period last year on +9.1% higher revenues, with a combination of easy comparisons and strong gains in a number of sectors giving us the growth rebound.
  • The blended Q1 total earnings are on track to reach a new all-time quarterly record, thanks to impressive results from Finance and Technology, the two largest earnings contributors to the S&P 500 index.
  • Estimates for the current and coming quarters are steadily going 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.
  • For the June quarter, S&P 500 earnings are currently expected to be up +57.6% on +16.1% higher revenues, as the year-earlier period represented the bottom of the Covid hit to earnings. The +57.6% earnings growth rate is up from +50.6% at the end of March and +41.6% at the start of January 2021.
  • The sectors with positive earnings growth in Q1 include: Finance (+95.9% earnings growth), Technology (+50.4%), Autos (+459.9%), Retail (+66.1%), Medical (+23.6%), Basic Materials (+79.6%), Construction (+55.7%), Industrial Products (+44.2%), Utilities (+8.0%), and Consumer Staples (+11.3%).
  • Currently, the only two sectors expected to see their earnings decline are Transportation (-156.3% earnings decline) and Consumer Discretionary (-19.1%).
  • Looking at the calendar-year picture for the S&P 500 index, earnings are projected to climb +31.5% on +9.2% higher revenues in 2021 and increase +12.3% on +6.5% higher revenues in 2022. This would follow a decline of -13.1% in 2020 on -1.7% lower revenues.
  • The implied EPS for the S&P 500 index, calculated using the current 2021 P/E of 23.5X and index close, as of May 3rd, is $178.61, up from $135.82 in 2020. Using the same methodology, the index EPS works out to $200.61 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.
  • For the small-cap S&P 600 index, we now have Q1 results from 297 index members or 49.4% of the indexs membership. Total earnings for these 297 index members are up +144.8% on +8.2% higher revenues, with 81.1% beating EPS estimates and 77.4% beating revenue estimates.
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The Q1 earnings performance of the Big 5 Tech players Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN) and Facebook (FB) was nothing less than spectacular. But you wouldnt know that by looking at how these stocks performed following the quarterly releases.

In fairness, the market liked Alphabet and Facebook reports enough to push those stocks higher. But it practically shrugged off the blockbuster Amazon numbers and appeared to be disappointed with the Microsoft and Apple reports.

With respect to Microsoft, the company not only beat top-and bottom-line estimates, but came out with earnings and revenue growth of +38% and +19.1%, respectively. Just to give you a sense of the magnitude of Microsofts earnings power, the company earned $14.8 billion in earnings on $41.7 billion in revenues.

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