For Immediate Release
Chicago, IL – April 2, 2020 – Zacks Director of Research Sheraz Mian says, "While the bulk of the estimate cuts are concentrated in Q2 and Q3, all four quarters of 2020 are now expected to suffer earnings declines relative to their respective year-earlier periods."
How Low Will Earnings Estimates Go?
Note: The following is an excerpt from this week’s Earnings Trends report. 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:
- Estimates have been coming down sharply as analysts start coming to terms with the pandemic’s earnings impact. While the bulk of the estimate cuts are concentrated in Q2 and Q3, all four quarters of 2020 are now expected to suffer earnings declines relative to their respective year-earlier periods.
- For 2020 Q1, total S&P 500 earnings or aggregate net income is now expected to decline -6.6% from the same period last year. This is down from close to +4% growth expected in early January. This is a bigger decline than we have seen in the comparable periods in recent quarters.
- Q1 earnings are expected to be below the year-earlier level for 10 of the 16 Zacks sectors, with double-digit declines at Autos (-63.4% earnings decline), Aerospace (-34.4%), Energy (-40.4%), Basic Materials (-29.1%), Transportation (-33.9%), Industrial Products (-18.0%), Conglomerates (-12.1%), Consumer Discretionary (-14.7%) and Retail (-10.1%).
- Sectors with positive earnings growth in Q1 include Technology (+0.6% earnings growth), Construction (+6.5%), Business Services (+5.6%), Medical (+2.0%), Consumer Staples (+0.5%), and Utilities (+1.5%).
- Estimates for Q2 and Q3 are still falling, with Q2 earnings now expected to decline -12.9% and an -11.8% decline in Q3. Sectors suffering the brunt of estimate cuts in Q2 include Energy (-60.3% decline in earnings), Autos (-63.3%), Transportation (-55.6%), Aerospace (-32.2%). Other sectors with year-over-year earnings declines exceeding 20% include: Consumer Discretionary (-24.5%).
- Given the uncertain public health backdrop that is driving these estimates cuts, it is reasonable to expect still deeper cuts to estimates in the days and weeks ahead, particularly as companies report Q1 results and share their outlook for underlying business conditions during these unusual times.
- For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -4.4% on +0.1% higher revenues. This is down from close to +8% at the start of the year. For reference, S&P 500 earnings declined -19.1% in 2008 and -3.4% in 2009, though that was admittedly a different type of downturn.
- The implied ‘EPS’ for the index, calculated using current 2020 P/E of 16.7X and index close, as of March 31st, is $154.80, down from $161.94 in 2019. Using the same methodology, the index ‘EPS’ works out to $176.32 for 2021 (P/E of 14.7X). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
- For the small-cap S&P 600 index, total Q1 earnings are now expected to be down -18.6% from the same period last year on -1.4% lower revenues. This would follow +1.8% earnings growth in the preceding period. The Q1 earnings growth picture would be even weaker had it not been for the strong growth in the Finance sector.
We are a couple of weeks away from the big banks really kicking off the 2020 Q1 reporting cycle, but a number of bellwether companies with fiscal quarters in February that get counted as part of the 2020 Q1 tally have been reporting results already. Many of these early reporters like Adobe ADBE, FedEx FDX, Nike NKE and others are giving us an early read on how the Q1 earnings season will likely unfold.
This is a bigger decline than we have been seeing in the comparable periods in other recent quarters, primarily reflecting the impact of the pandemic.
The negative revisions trend is broad based, with estimates for 15 of the 16 Zacks sectors coming down. The Utilities sector is the only that has experienced a very modest increase in estimates.
Sectors with the biggest negative revisions include Energy, Aerospace, Autos, Basic Materials, Transportation and Consumer Discretionary. To get a sense of the magnitude of negative revisions suffered by the Energy and Aerospace sectors, take a look at the recent revisions trend for ExxonMobil XOM and Boeing BA.
Exxon is currently expected to report 25 cents in EPS for the March quarter, which is down from 62 cents a month ago. Similarly, Boeing is currently expected to lose $1.46 per share in Q1, down from estimates of $2.75 per share in positive earnings three months back.
Estimates for the next three quarters of 2020 have been coming down lately as well, with positive growth arriving in the first quarter of 2021.
Full-year 2020 earnings growth is now in negative territory, with estimates likely to come down further as we get greater visibility on the pandemic’s economic damage.
Analysts haven’t made a lot of changes to estimates for next year, currently showing a strong double-digit growth pace. But it hard to have a lot of confidence in these expectations in the current backdrop of macroeconomic uncertainty, with the U.S. and global economic growth taking a severe hit from the pandemic. A lot is riding on how the outbreak evolves in the coming weeks, which will determine the extent of the economic hit and the eventual turnaround.
In the best-case scenario, the bulk of the economic impact is confined to Q2, with growth trend stabilizing in Q3 and accelerating toward the end of the year. Driving this view is the expectation is that the outbreak peaks in the late-April/early-May timeframe and starts subsiding thereafter.
We will see if these expectations pan out, but the coming earnings season will be unusual in many ways.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Follow us on Twitter: https://twitter.com/zacksresearch
Join us on Facebook: https://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Investment Research
800-767-3771 ext. 9339
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
NIKE, Inc. (NKE) : Free Stock Analysis Report
Exxon Mobil Corporation (XOM) : Free Stock Analysis Report
The Boeing Company (BA) : Free Stock Analysis Report
Adobe Systems Incorporated (ADBE) : Free Stock Analysis Report
FedEx Corporation (FDX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research