By Tom Burnett CFA
We continue to follow earnings estimates for the S/P 500 Index companies as provided by the FACTSET weekly surveys. In the May 8, 2020, edition, the estimates continue to move lower. The analyst consensus earnings figure for 2020 is now $130.91, down 19.6% from the 2019 earnings of $163.02. The 2020 estimate is down 25.5% from the 2020 estimate that was issued on February 21, 2020. Clearly the Coronavirus pandemic and the global attempts to halt its spread have devastated the corporate earnings landscape. Reported earnings for the 2020 first quarter are down (among S/P 500 Index companies) 13.6% from the 2019 first quarter, the worst performance since the 15.6% decline in the third quarter of 2009. Importantly, the 2020 first quarter included only one month of the global “lockdown” which has punished corporate earnings performance. Most observers expect the June quarter earnings decline to be much worse since the ‘lockdown’ environment will have been in place for the entire quarter.
With the Index trading at the 2,930 level, the 2020 earnings multiple is an aggressive and historically high figure of more than 22x. The FACTSET May 8 forecast for 2021 looks for a 27% increase to the $165 level where the earnings multiple would be a more reasonable 17.7x. Investors need to follow these earnings forecasts carefully since they can and often do change dramatically from week to week.
Tom Burnett CFA is Director of Research