Analysts Raising S/P 500 Earnings Estimates for 2021

By Tom Burnett CFA
As we begin to observe the reporting season for second quarter operating results, it is helpful to look at current trends in the consensus estimates for the S/P 500 Index companies. We will use data from the July 6, 2021 FACTSET report. Second quarter Index earnings are now expected to increase by 64.0% from the second quarter of 2020 when the negative impact of the COVID -19 outbreak was most evident. If the earnings growth reaches that level, it will be the largest year-over-year increase since the fourth quarter of 2009.
The consensus estimate for all of 2021 is now $191.49 which is a 36% increase over the 2020 annual figure of $140.46. The $191.40 projection is well above the $166 figure that was the expected 2021 estimate last September. Analysts now look for earnings of $213.04 in 2022, an increase of 11.5% from the 2021 projection.
With the Index trading in the 4,380 area, the 2021 forward earnings multiple is 22.8x, materially higher than the 5-year average of 18.1x. This high earnings multiple is supported by the continuing low interest rate environment, but that support is vulnerable to any Federal Reserve action that might be seen as a reversal of the long-standing accommodative monetary policy that has encouraged this low-rate period. Investors must remain alert to any Fed policy changes that will herald a higher rates background for the equity markets.
Tom Burnett CFA is Director of Research