By Tom Burnett CFA
The latest FACTSET earnings summary forecast for the S/P 500 Index continues to reflect reduced expectations for 2020. The negative impact of the economic standstill resulting from the COVID-19 virus outbreak is beginning to show up directly in the consensus analyst surveys and forecasts. For example, the April 17, 2020 issue gives earnings estimate of $143.61 for the 2020 year, down 19% from the February 21, 2020 estimate that was prepared before the “stay home” orders were issued by many state governors. The $143.61 estimate is 12.2% below the $163.02 figure for earnings in 2019. Most observers look for further downward adjustments as the 2020 year progresses and companies report their results for the upcoming June and July quarters.
With the S/P 500 Index trading in the 2,800 area, the earnings multiple for 2020 is now an out-of-normal range of 20x which reflects the consensus optimism of a sharp earnings recovery in 2021. The FACTSET estimate for 2021 is $173.62, representing a gain over 2020 of 20.0%. it should be noted, however, that the 2021 estimate given on February 21, was $195.83. This reduction leaves the latest 2021 estimate lower by 12% from the earlier forecast.
Tom Burnett CFA is Director of Research