Forecasts for Corporate Earnings Trends Remain Positive

By Tom Burnett CFA

The February 12, 2021 issue of the FACTSET earnings report (for the S/P 500 Index)  now sees consensus earnings growth of 2.9% in the 2020 fourth quarter, compared to the year-earlier quarter.  If achieved, that positive rate of earnings growth would follow three consecutive quarters of negative comparisons. The negative performance was particularly striking in the second quarter, when earnings fell 31.6% from the corresponding 2019 quarter.

For the 2020 year, the consensus figure is now $140.25 which would be down more than 14% from the 2019 annual earnings level.  In July, however, the 2020 estimate was just $126.79.  The consensus estimate for 2021 is now $173.96, an increase of 24.2% from the expected 2020 figure.  Analysts are also positive about earnings growth for 2022 where a $200.34 estimate is projected.  If achieved, that figure would represent a gain of 15.1% from 2021.  The 2022 figure is a 2% increase from what was projected in the January 15, 2021 FACTSET report.

With the Index trading at 3,900, the P/E Ratio on 2021 projected earnings is 22.4x, a historically high multiple.  Interest rates remain low, though they are rising which suggests that the benefits of lower rates may be slipping away.  Corporate earnings appear to be entering a robust growth and recovery period, but investors need to remain sensitive and aware of the market’s high valuation of those earnings.

Tom Burnett CFA is Director of Research