EC Where Are We With Small-Cap Earnings?

The table below shows a summary picture for the small-cap index.

Looking past Q4, the expectation is for an outsized gain in 2021 Q1, with total S&P 600 earnings expected to be up +191.5% on +5.8% higher revenues. Driving the outsized year-over-year gain is easy comparisons, with the year-earlier period experiencing a -68.5% decline as Covid-19 took hold. The chart below of quarterly earnings totals, in billions of dollars, flags the pandemic’s full impact and the extent of comparisons.

Favorable Revisions Trend

As we have been consistently pointing out, the revisions trend has been positive, with estimates for the current and coming quarters steadily going up.

The chart below shows how estimates for 2021 Q1 for the small-cap index have evolved.

Here is the same for the large-cap index.

The Annual Picture

Total S&P 600 earnings are on track to be down -28.8% on -9.3% lower revenues in 2020, with a very strong rebound expected this year and beyond, as the chart below shows.

For the large-cap index, 2021 earnings are expected to be up +28.6% on +9% higher revenues, which would follow the -16.8% decline on -2.9% lower revenues in 2020, as the chart below shows.

We have to keep in mind the variance in sector distribution between the large- and small-cap indexes. For example, the Technology sector accounts for 30.7% of the S&P 500 index’s total market capitalization, while this sector accounts for only 13.7% of the small-cap index’s market capitalization. The Finance sector is a much bigger part of the small-cap index (25.1%) than it is of the large-cap index (13.8%).

There are other smaller differences as well, but these two large sectors give these indexes altogether different flavors.

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William K. 2 months ago Member's comment

When we look at a large event, like the Boston Marathon, and we wonder how the second half of the participants are doing, it does us no good to look at how the first five are doing. I see a similarity to that here. Consider all of those smaller companies not doing so immensely well that did not make it into the S&P list because of size or profits. A small-cap company is not one of those giants, and so it may not follow a similar trajectory.

Anne Davis 2 months ago Member's comment

Good analogy.