By Tom Burnett, CFA
Looking at the latest data from FACTSET, it is apparent that the negative impact of the Coronavirus outbreak on economic growth is falling on corporate earnings forecasts. As economists revise downward their full year 2020 projections for U.S. GDP growth, research analysts are lowering their company earnings forecasts. The March 20, 2020 FACTSET report uses a consensus figure of $168 73 for the S/P 500 Index earnings for the 2020 year. That estimate equates to a growth rate of 4.1% from the 2019 earnings of $163.02. It is important to note that the latest 2020 estimate is down 4.2% from the estimate of $175.98 in the February 21, 2020, report. The 2020 earnings growth rate is now assumed to be 4.1%, down from a rate 7.9% in the earlier report. As expected, the estimate for 2021 has been lowered from $195.88 to $190.57 in the latest report.
The 34% decline in the S/P 500 Index from the February high has brought down the 2020 price-earnings ratio to a more rational level of 14.1x, down from over 17.5x in the early February market period.
Tom Burnett CFA is Director of Research