Corporate Earnings: Analysts Now Forecast Positive Growth in Q4 of 2020

By Tom Burnett CFA

According to the February 5, 2021 issue of the FACTSET earnings report, the final quarter of 2020 will show year-over-year S/P 500 earnings growth of 1.7%.  The first three quarters of the year all turned in negative comparisons.  The latest forecast is for earnings of $139.97 for the 2020 year, down 14% from the 2019 level of $163.12.  In 2021, earnings are projected to reach $173.43, an increase of 23% from the depressed 2020 level.  In its July 10, 2020, forecast report, FACTSET projected just $163.17 for the 2021 year.  It now appears that analysts believe the negative impact of the COVID-19 outbreak will be confined to 2020 with solid earnings growth expected in 2021.  The early projection for 2022 is also positive with a forecast of $199.85, up 15% from the 2021 level.

Despite the improved outlook for corporate earnings, the equity markets remain fully valued.  With the S/P 500 trading at 3,900, the P-E multiple on expected 2021 earnings is more than 22x, a very high level on a historical basis.

Tom Burnett CFA is Director of Research