Market Wrap
Narratives
Week Ahead
FactSet Earnings
Given the uneven global economic recovery from COVID-19, did S&P 500 companies with higher international revenue exposure underperform S&P 500 companies with more domestic revenue exposure in terms of revenue growth for Q1 2021? The answer is no. FactSet Geographic Revenue Exposure data (based on the most recently reported fiscal year data for each company in the index) was used to answer this question. For this analysis, the index was divided into two groups: companies that generate more than 50% of sales inside the U.S. (more domestic exposure) and companies that generate more than 50% of sales outside the U.S. (more international exposure). Aggregate revenue growth rates were then calculated based on these two groups.
For companies that generate more than 50% of revenues inside the U.S., the blended revenue growth rate is 8.9%. For companies that generate more than 50% of revenues outside the U.S., the blended revenue growth rate is 16.2%. What is driving the sharp difference in revenue growth between S&P 500 companies with more international revenue exposure and more domestic revenue exposure?
At the sector level, there was broad-based outperformance by companies with more international revenue exposure, led by the Information Technology and Communication Services sectors. In seven of the 11 sectors, the companies with more than 50% international revenue exposure had higher revenue growth rates than the companies with more than 50% domestic revenue exposure. The Information Technology and Communication Services sectors were the largest contributors to the 16.2% revenue growth rate for S&P 500 companies with more than 50% international revenue exposure. The Information Technology sector has the highest international revenue exposure of all 11 sectors at 57%, while the Communication Services sector is tied with the Energy sector for the fourth-highest international revenue exposure of all 11 sectors at 42%. If these two sectors were excluded, the revenue growth rate for companies with more than 50% international revenue exposure would fall to 7.0% from 16.2%.
It is interesting to note that there was a much smaller difference in earnings growth rates for S&P 500 companies with more than 50% international revenue exposure (53.7%) and more than 50% domestic revenue exposure (51.2%). This smaller difference was mainly due to the Financials sector. The Financials sector was the largest contributor to the 51.2% earnings growth rate for S&P 500 companies with more than 50% domestic revenue exposure. The Financials sector has the third-highest U.S. revenue exposure of all 11 sectors at 77%. If this sector were excluded, the earnings growth rate for companies with more than 50% domestic revenue exposure would drop to 30.3% from 51.2%.
Within the Financials sector, the Banks industry was the largest contributor to earnings growth for the sector. The Banks industry reported earnings growth of 258% but revenue growth of only 3%. This sharp difference between earnings and revenue growth was mainly due to companies in this industry reporting substantial year-over-year decreases in provisions for loan losses, which had no impact on revenue growth but significantly boosted earnings growth.
| Metric | UpDn | This Week | Prior Week | Comments |
|---|---|---|---|---|
Forward 12-mo Estimate | 🔵 | 189.06 | 188.42 | vs. @December 31, 2020 $159.02 |
2y Combined Average Growth Rate % | 🔵 | 7 | 6 | vs. @December 31, 2020 3% |
Forward 12-mo PE | ⚪️ | 22 | 22 | vs. @December 31, 2020 26x |
Earnings Yield | 🔵 | 4.56 | 4.49 | vs. @December 31, 2020 4.23% |
S&P 500 Futures
Bull vs Bear
This Week
/w=48,quality=90,fit=scale-down){kind=small}
Last Week
/w=48,quality=90,fit=scale-down){kind=small}
/w=48,quality=90,fit=scale-down){kind=small}