By Tom Burnett CFA
The latest (February 21, 2020) Earnings Insight report from FACTSET provides earnings estimates for the S/P 500 Index. We regularly check these surveys to monitor analyst forecasts and changes in forecasts for the Index earnings expectations. The average view for 2020 earnings on the Index is now $175.98 which would represent an increase of 7.9% over the 2019 figure of $163.09. One year ago, the average forecast for 2020 earnings was 9.5% above the expected 2019 figure. One year ago, the forecast for 2020 earnings was $188.70, now it is $175.98 or 7.2% lower.
Looking at 2021, the average forecast is $195.88 or 11.3% above the expected level for 2020 earnings. This growth forecast is down slightly from the January 10, 2020 issue’s expected growth of 11.6% in 2021. Importantly, none of these forecasts incorporate the negative impact of the wider breakout of the coronavirus from the confines of mainland China. As this impact is baked into future forecasts, we expect the growth rate estimates to decline. With the Index trading in the 3,200 area, the price-earnings multiple on the 2021 average forecast ($195.88) is 16.3x, a relatively high figure bolstered by a very low interest rate environment.
Tom Burnett is Director of Research