Corporate Earnings now Expected to Grow Sharply in 2021

By Tom Burnett CFA
In the most recent FACTSET report dated September 18, 2020, the consensus estimates for earnings for the S/P 500 Index companies have been revised to $166.35 for the 2021 year. In the July 24 report, the estimate was $163.17. Similarly, the consensus estimate for the 2020 year has now been raised to $132.53 from $126.79 in the July 10, 2020 report. If these estimates hold up, the earnings decline in 2020 would be 19% and the recovery in 2021 would represent a gain of 26%. With the Index trading around the 3,300 level, the earnings multiple on 2021 earnings would be 19.8x, a high number even in an environment of very low interest rates.
The negative impact of the Covid-19 outbreak and the measures taken to combat it could not be more obvious. The economic growth of recent years came to a sudden, material halt. Unemployment rose dramatically and corporate earnings fell immediately. The decline in second quarter earnings for the Index companies was 37% compared to the 2019 second quarter. That decline is the deepest drop in quarterly earnings since FACTSET began its quarterly surveys in 2002. Third quarter results are now expected to decline by 21% from the 2019 third quarter. Generally, analysts have become more positive about the corporate earnings recovery, but a lot of damage has done in the latest six months of 2020.
Tom Burnett CFA is Director of Research