By Tom Burnett CFA
With most of the S/P 500 Index companies reporting first quarter earnings, the growth and recovery trends remain in place. According to the May 14, 2021, FACTSET report, the first quarter Index earnings will be 50.3% above the Covid-ravaged first quarter of 2020. This performance is the best quarterly earnings growth since the first quarter of 2010.
The glowing first quarter earnings performance has encouraged the analyst community to raise its estimates for this year and for 2022. The consensus estimate for 2021 earnings is now $187, more than 33% above the figure of $140 for 2020. We note that the January 15 FACTSET report only projected an earnings figure of $168.50 for the 2021 year. The current $187 estimate is 11% higher than the January 15 forecast.
Looking ahead to 2022, the consensus estimate is now $210, which corresponds to growth of 12.2% above the 2021 estimate of $187. In January, the consensus estimate for 2022 was $196.10, some 7% lower than the current 2022 forecast.
The recent stock market correction has somewhat reduced the 2021 P-E ratio from 22x to 21x, but the multiple remains historically high. The most recent FACTSET report discloses that the 5-year average P-E ratio is 17.9x and the ten-year average is 16.7x. Despite the earnings recovery, investors must be careful not to overpay for the expected earnings growth.
Tom Burnett CFA is Director of Research