By Tom Burnett CFA
We track and closely monitor the weekly FACTSET earnings estimates for the S/P 500 Index companies. After falling sharply since early March, the consensus estimates have begun to flatten out. For example, the report for June 5, 2020, gives an estimate of $127.86 for the year 2020. Two weeks ago, that 2020 estimate was $128.49. Going back to the February 21 estimate, however, the 2020 estimate was $175.98. as the impact of Covid-19 and the measures put in place to counter it, earnings estimates were cut dramatically. Looking at the current analyst forecast picture, it appears that the worst of the earnings declines may have passed. In fact, the consensus estimate for next year is a sharp increase of 28% to the $164 level achieved in 2019. Even if the major earnings declines are behind us, the market rally has elevated the 2021 earnings P-E ratio to a high level of 19.5x. Investors must also be prepared to absorb very negative earnings reports for the June quarter which will likely be the worst quarter of 2020. FACTSET is looking for a 43% decline in second quarter earnings compared to the 2019 second quarter.
Tom Burnett CFA is Director of Research