By Tom Burnett CFA
According to the latest compilation from research firm FACTSET, corporate earnings estimates for the S/P 500 companies have reversed their earlier downtrend. For example, the 2020 estimate is now $132.12, up from $126.79 in the July 10 report. Earnings are now expected to rise 25% in 2021 to $166.02. The 2021 estimate made in the July 10 report was $163.17.
If the 2020 estimate holds up, it will represent a decline of 19% from the 2019 earnings figure of $163.02. The Index is currently trading in the 3,380 area which implies a multiple of 20.4x the 2021 estimates. Even with historically low interest rates, the earnings multiple is aggressive and primed for possible disappointment. From the corporate earnings perspective, however, analysts now believe that the economy has seen the worst and they now anticipate a strong earnings recovery in this year’s second half leading to a much better performance in 2021.
Tom Burnett CFA ifs Director of Research