S/P Companies Show Stable and Improving Earnings Forecasts

By Tom Burnett CFA
According to the latest compilations, analysts are issuing earnings forecasts that are stable and gradually improving since the July estimates were issued. The FACTSET report from October 16, 2020, now sees consensus estimates for the S/P 500 Index of $133.74 in 2020 and $166.46 in 2021. The 2020 estimate is down 17.8% from the $163.02 earnings in 2019. The recovery expected for next year represents an increase of 24.6%. Importantly, the 2021 figure would be higher than the level achieved in 2019 before the negative impact of the Covid-19 pandemic was felt.
Earnings have suffered severely this year. The June quarter showed a decline of 31.6% on a year-over-year basis. The decline for the third quarter is now thought to be 18.4%, as the general economic recovery takes hold and corporate profitability improves.
With the Index currently trading in the 3460 area, the multiple on expected 2021 earnings is now 20.8x, historically high even with today’s low interest rates. The important point, however, is that earnings forecasts appear to have bottomed out in July with most analysts expecting continuing improvements as the overall economy recovers.
Tom Burnett CFA is Director of Research