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FactSet Earnings
When companies in the S&P 500 report actual earnings above estimates during an earnings season, the overall earnings growth rate for the index increases because the higher actual EPS numbers replace the lower estimated EPS numbers in the calculation of the growth rate. For example, if a company is projected to report EPS of $1.05 compared to year ago EPS of $1.00, the company is projected to report earnings growth of 5%. If the company reports actual EPS of $1.10 (a $0.05 upside earnings surprise compared to the estimate), the actual earnings growth for the company for the quarter is now 10%, five percentage points above the estimated growth rate (10% - 5% = 5%).
Over the past five years, actual earnings reported by S&P 500 companies have exceeded estimated earnings by 6.9% on average. During this same period, 74% of companies in the S&P 500 have reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has typically increased by 4.6 percentage points on average (over the past five years) due to the number and magnitude of positive earnings surprises.
However, during the past three quarters (Q2 2020 through Q4 2020), actual earnings reported by S&P 500 companies have exceeded estimated earnings by 19.0% on average. During these three quarters, 82% of companies in the S&P 500 have reported actual EPS above the mean EPS estimate on average. As a result, from the end of the quarter through the end of the earnings season, the earnings growth rate has increased by 13.8 percentage points (on average) due to the number and magnitude of positive earnings surprises over these past three quarters.
If this average increase is applied to the estimated earnings growth rate at the end of Q1 (March 31) of 23.8%, the actual earnings growth rate for the quarter would be 37.6% (23.8% + 13.8% = 37.6%). If the S&P 500 reports year-over-year growth in earnings of 37.6% in Q1, it would mark the highest year-over-year earnings growth rate reported by the index since Q2 2010 (41.5%).
Of the 21 S&P 500 companies that have reported actual earnings for Q1 2021 to date, 81% have reported actual EPS above the mean EPS estimate. In aggregate, actual earnings reported by these 21 companies have exceeded estimated earnings by 9.8%. Thus, at this very early stage of the Q1 earnings season, the number of companies reporting positive earnings surprises is trending closer to the number of the previous three quarters, while the magnitude of the positive earnings surprises is trending closer to the five-year average. Since March 31, the earnings growth rate for the S&P 500 has improved by 0.7 percentage points (to 24.5% from 23.8%).
Metric | UpDn | This Week | Prior Week | Comments |
---|---|---|---|---|
Forward 12-mo Estimate | 🔵 | 183.34 | 180 | The new 4q estimate now measures Q221 → Q122 |
Forward 12-mo PE | 🔵 | 22 | 21.9 | vs. @December 31, 2020 26x |
Earnings Yield | 🔵 | 4.44 | 4.37 | vs. @December 31, 2020 4.23% |
2y Combined Average Growth Rate % | 🔵 | 6 | 5.5 |
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