Zacks Investment Research | Dec 09, 2020 10:32PM ET
Note: The following is an excerpt from this week’s
Here are the key points:
The overall earnings picture started improving in July, as the U.S. economy came out of the pandemic-driven slump. While pockets of entrenched weakness remain, the pace and magnitude of the recovery has largely been better than expected.
This improving trend has been showing up in positive estimate revisions, with analysts steadily raising their estimates. We saw this earlier with Q3 estimates and we are seeing the same trend in play for Q4 estimates as well, as the chart below shows.
Estimates have largely been stable over the last few weeks, with the current -11.2% expected decline in Q4 staying the same for the last two weeks. This could be reflective of the negative effects of surging infection rates in the country at present, which has been showing up in some of the more recent economic data as well. But we suspect the moderation or stalling trend in estimate revisions is likely just a seasonal phenomenon, reflecting the quiet period between earnings releases.
We will start seeing the early Q4 results in the coming days, as companies with fiscal quarters ending in November start reporting results. We have already seen the AutoZone (NYSE:AZO) (AZO) earnings release, with FedEx (FDX), Nike (NYSE:NKE) (NKE), Oracle (ORCL) and others on the docket in the next few days. We strongly feel that the positive revisions trend that we have been seeing over the last few months will pick up again as more companies report quarterly results and discuss their outlook for the coming periods.
The chart below shows the quarterly earnings and revenue growth picture.
We remain positive in our earnings outlook, as we see the full-year 2021 growth picture steadily improving through the first half of the year as more of the population gets vaccinated. We strongly feel that current consensus economic growth projections reflect learned experiences of economic recoveries from the last few recessions.
We don’t think that this recovery will follow this past pattern as this downturn was fundamentally different. As such, we see significant upside to current consensus GDP growth estimates of +3.8% for 2021, which drives our favorable earnings outlook for the year and beyond.
The chart below shows the overall earnings picture on an annual basis.
The flow of economic readings continues to be favorable, though the pace of the recovery in the current period will be significantly below Q3’s break-neck speed moderate. The hope is that the recovery in the economy, as well as the earnings outlook doesn’t lose pace in the face of rising infections and delayed fiscal relief.
Beyond the Q4 earnings season, the outlook remains positive.
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