Corporate Earnings Estimates Begin to Level Out

By Tom Burnett CFA

We continue to monitor the FACTSET data for 2020 consensus earnings estimates for the S/P 500 Index. Based on data from the June 26 report, it appears that analysts have begun to flatten out their earnings forecasts for the 2020 and 2021 years. While the forecasts for the June quarter remain dismal with an expected decline of 43% from the prior year’s quarter, the annual forecasts are no longer dropping sharply. The consensus estimate for the 2020 year is now $126.86, down only one dollar from the June 5 estimate. The $126.86 level would be down 22% from 2019. Earnings are now expected to rebound 29% to $163.45 in 2021. At that level, 2021 earnings would return to the 2019 level. With the Index at 3039, the multiple on 2021 earnings is 18.6x, above historical averages, but somewhat justified by historically low interest rates. Investors should prepare themselves for some very negative June quarterly reports, but it does appear that the worst of the annual consensus estimates is now behind us.

Tom Burnett CFA is Director of Research