S&P 500 21Q1 Earnings Review: Gauging The ‘New’ Earnings Season

Only three sectors remain below pre-pandemic levels. Industrials are currently expecting $19.5bn in earnings this quarter compared to $29.9bn in 19Q1, resulting in a 34.8% decline when re-based.Energy earnings are 30.4% off from 19Q1 levels, while Real Estate is only down 1.5%.

Exhibit 8: S&P 500 Share-weighted Earnings ($m)

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This will be an encouraging sign for the market, which is looking to see earnings fill rich valuation levels. In April, 21Q1 earnings increased from $336.5bn to $396.2bn, a 17.8% increase, significantly outperforming the S&P 500, which gained 5.3% over the same period.

The FTSE Russell 1000 index is trading at a forward P/E of 23.3x compared to a 10-year average of 16.6x, marking a 40.3% premium.

For additional context, the FTSE Russell 1000 Growth index is trading at a forward P/E of 31.0x compared to a 10-year average of 19.3x, marking a lofty 60.6% premium. In comparison, the FTSE Russell 1000 Value index is trading at a forward P/E of 18.3x compared to a 10-year average of 14.5x, yielding a more reasonable premium of 26.2%.

Analyst estimates continue to rise

There may be a debate as to whether 21Q1 was so strong due to base effects (i.e. low 2020 comparables) or estimates not being raised quickly enough. Regarding the former, 20Q1 did not feel the brute impact of COVID-19 until the middle of March when economies started to lock down, which would indicate that 21Q1 earnings has been a success thus far. Regarding the latter, we are certainly seeing analysts’ estimates being revised upwards off the back of a strong 21Q1 season. Looking at the latest “This Week in Earnings” report, we have seen a sharp increase in the S&P 500 Earnings Estimate Revisions Trend during April.

We continue to see an upward trend in the percentage of upward revisions vs. downward revisions for full-year (FY1) estimates since February 2021. In the latest reading, of the 2,314 analyst estimate revisions that occurred during the week of April 30, 79% of estimates were higher than the previous estimates for FY1.

The upward revisions of 79% is the highest since November 6, 2020 and significantly above the long-term average (since March 2016) of 52%.

As a result, we have seen the 21Q2 earnings growth estimate, improving six percentage points in April (54.0% to 60.0%).

Exhibit 9: S&P 500 Earnings Estimate Revisions Trend

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