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Our take on the Q1 earnings season has been justifiably positive, with the reported results handily exceeding expectations and management guidance and qualitative commentary leading to raised expectations for the current and coming periods.
We tend to dwell a lot on the Technology and Finance sectors as we look for earnings trends in the aggregate, as these two sectors combined account for so much of the total earnings pie. Over the coming four quarters, these two sectors are expected to bring in 47.4% of all S&P 500 earnings. As such, what happens in these two sectors have a big impact on the aggregate growth picture.
We have been showing in this space how strong the earnings performance in the Finance and Technology sectors has been. The goal in this piece is to share with you the very impressive Q1 results and rising estimates outlook for the economically sensitive sectors like Basic Materials, Industrial Products, Construction, Autos and others.
The earnings outlook for all of these sectors is extremely good. We will feature these sectors individually in this space in the coming weeks, starting with the Construction sector today.
The Zacks Construction sector has been on an impressive growth trajectory since the pre-Covid period, with the pandemic and favorable interest rate backdrop adding to the space’s momentum. The space is on track for record earnings and revenues, with the aggregate totals far exceeding what we saw at the top of the housing boom.
The chart below shows the Zacks Construction sector’s earnings on an annual basis, with 2021 on track to reach $21.5 billion.
You can see here the sector’s 2021 profitability is more twice what the sector earned at the peak of the housing bubble in 2005.
You would be 100% correct in expecting the constituent stocks in the Zacks Construction sector, which have been listed at the bottom of the above chart and includes operators like D.R. Horton (DHI), Lennar Corp. (LEN), Quanta Services (PWR) and others, have been literally on fire, as you can see in the one-year performance comparison of the sector with the S&P 500 index.
The group’s Q1 earnings performance has been very impressive. With results from 92.9% of the Construction sector companies in the S&P 500 index already out, total Q1 earnings for these companies are up +60.6% on +11% higher revenues, with 92.3% beating EPS estimates and 61.5% beating revenue estimates.
Unlike the market’s tepid response to the blockbuster Tech sector results, the post-release stock market reaction has been strongly positive for the Construction stocks.
Q1 Earnings Season Scorecard (As of Friday, May 7th)
We now have Q1 results from 440 S&P 500 members or 88% of the index’s total membership. Total earnings (or aggregate net income) for these 440 companies are up +46.6% from the same period last year on +9.8% higher revenues, with 86.1% beating EPS and 76.8% beating revenue estimates.
The reporting cycle starts winding down for these large-cap companies going forward, though hundreds of other companies (outside of the S&P 500 index) are still to report Q1 results. This week brings in results from more than 600 companies in total, including 17 S&P 500 members.
Disney (DIS) and Electronic Arts (EA) are the notable index members reporting results this week. But there will be a host of ‘interesting’ releases this week, including DoorDash (DASH), Airbnb (ABNB), Canada Goose (GOOS), Alibaba (BABA), to just a few.
The two sets of comparison charts below put the Q1 results from these 440 index members in a historical context, which should give us a sense how the Q1 earnings season is tracking at this stage relative to other recent periods.
The first set of comparison charts compare the earnings and revenue growth rates for these 440 index members.
The growth comparison is likely not fair, given the unusually high year-over-year growth rates in the Finance sector, a function of big reserve releases and easy comparisons in 2021 Q1. On an ex-Finance basis, the Q1 earnings growth for the remaining companies that have reported results drops to only +34%.
But even on an ex-Finance basis, the Q1 earnings growth rate still compares favorably to other recent periods, as the chart below shows.
The second set of charts compare the proportion of these index members beating EPS and revenue estimates.
Overall Expectations for 2021 Q1
Looking at Q1 as a whole, combining the actual results that have come out with estimates for the still to come companies, total earnings for the S&P 500 index are expected to up +46.2% on +9.4% higher revenues. In other words, the remaining 60 index members still-to-report Q1 results aren’t expected to move the growth needle in any significant way.
The table below shows summary expectations for 2021 Q1, contrasted with what was actually achieved in 2020 Q4.
The chart below takes a big-picture view of the quarters, showing Q1 earnings and revenue growth highlighted and shown in the context of what was actually achieved in the last few quarters and what is expected in the coming periods.
The chart below shows quarterly earnings totals or quarterly aggregate net income, instead of year-over-year growth rates. This gives us a better appreciation of the pandemic’s earnings imapct and the resulting easy comparisons that are helping the growth rate in Q1 (and even ‘bigly’ in Q2).
That said, the 2021 Q1 total at $426 billion is a new all-time quarterly record.
The chart below presents the big-picture view on an annual basis. As you can see below, 2021 earnings and revenues are expected to be up +32.5% and +9.6%, respectively, which follows the Covid-driven decline of -13.1% in 2020.
On an index ‘EPS’ basis, the 2021 expectation works out to $180.06, up from $135.87 per ‘Index share’ in 2020.
These full-year estimates have been going up as well, as the chart below shows.
We envision this favorable revisions trend to accelerate over the next few months as the vaccination effort reaches a critical mass and greater ‘normalcy’ returns to life.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>A Positive Earnings Backdrop
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Quanta Services, Inc. (PWR) : Free Stock Analysis Report
Lennar Corporation (LEN) : Free Stock Analysis Report
Canada Goose Holdings Inc. (GOOS) : Free Stock Analysis Report
Electronic Arts Inc. (EA) : Free Stock Analysis Report
The Walt Disney Company (DIS) : Free Stock Analysis Report
D.R. Horton, Inc. (DHI) : Free Stock Analysis Report
DoorDash, Inc. (DASH) : Free Stock Analysis Report
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
Airbnb, Inc. (ABNB) : Free Stock Analysis Report
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