S&P Report Card: Earnings Look Pretty Good With 75% of Results In

We have seen earnings results from just over 75% of S&P 500 members and so far the results have been pretty good. Looking at the overall numbers, 71.2% of the companies have beaten EPS estimates, 9.8% have matched, and 19% have missed their estimates. Historically, 65% of companies beat estimates so the quarter has been a little better than the long-term average. This quarter is a little behind the pace of the last four quarters where we see an average of 74% of companies beating estimates.

Looking at the revenue results, with 377 companies already reporting, 66% of companies have beaten their top-line estimates and 34 % have come up short. The revenue numbers have been really good with the long-term average showing that 60% of companies beat. In the previous four quarters, only 58% have beaten revenue estimates on average.

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As for the sectors that have performed well, tech stocks have performed really well with 84% of stocks beating EPS estimates and only 14% have missed. The healthcare sector has also been impressive with 82% beating, 10% matching, and only 8% missing. That is the lowest percentage of misses among the 11 main sectors.

Conversely, the real estate sector has only seen 45% of companies beat while 30% have matched and 25% have missed. The energy sector has the highest percentage of companies missing EPS estimates at 47%. The sector has only seen 53% of companies beat estimates.

Overall, seven sectors have seen over 70% of companies beat while six sectors have seen over 20% miss estimates.

Turning to the revenue results, the healthcare sector is again one of the top sectors with 84% of companies beating estimates and only 16% missing. The tech sector has the second best percentage of companies beating at 79% and the communication services sector was close behind at 78%.

The worst sector for revenue results has been the utilities sector. Only 11% have beaten estimates while 89% have missed. There is a tie for the second lowest percentage of 48% beating revenue estimates with both materials and industrials seeing those percentages.

Looking at the earnings growth rates, the fourth quarter shows growth of only 2.5% so far, but that is up from the -0.3% we saw in the third quarter. Revenues have grown by 5.1% in the fourth quarter and that is also an improvement. Revenue grew by an average of 3.9% in the third quarter.

Earnings are expected to grow by 3.8% in the first quarter of 2020 and revenue is expected to grow by 4.4%. It’s unclear how much these estimates have been adjusted for the impact of the coronavirus.

The figures I have used in this article are all from the S&P 500 Earnings Scorecard from Refinitiv. While going through the report there was one particular chart that jumped out at me and that chart is below.

We see how earnings growth has slowed drastically since 2018 and that is primarily the result of the changes to the tax overhaul from the Trump Administration. When the Tax Cuts and Jobs Act of 2017 was approved in late 2017, it caused the earnings numbers to spike in 2018. This is the reason for the big differential and the big drop off in 2019.

Personally I am a little concerned about the predictions for late 2020 and early 2021. Most analysts and economists are predicting a slowdown in the economy and possibly a recession later this year or starting in 2021. And yet analysts are looking for double-digit earnings growth in the second half of 2020 and in the first three quarters of 2021. This seems a little too optimistic to me. If the recession predictions are right, I don’t think there is any way we see the level of growth currently being predicted.

About Rick Pendergraft

Rick has been studying, trading, analyzing and writing about the investment markets for over 30 years. He has worked for some of the largest financial publishers in the world and he has been quoted in the Wall Street Journal, USA Today, the New York Times and the Washington Post. In addition, he has been interviewed on Bloomberg, CNBC and Fox Business News. Rick’s analysis process includes fundamental, sentiment and technical analysis. Rick started college as an education major, wanting to teach economics, but eventually changed to majoring in Economics and received a Bachelor of Science in Economics from Wright State University. His desire to inform and educate people is at the heart of his writing.