Zacks Investment Research | Feb 19, 2020 03:05AM ET
Note: The following is an excerpt from this week’s
Here are the key points:
Q4 Earnings Season Scorecard (as of February 19th, 2020)
We now have Q4 results from 411 S&P 500 members that combined account for 88.6% of the index’s total market capitalization. Total earnings for these 411 index members are up +1.1% from the same period last year on +4.6% higher revenues, with 73.0% beating EPS estimates and 65.7% beating revenue estimates.
The two sets of comparison charts below put the results thus far in a historical context, first the growth rates for these 411 index members.
And then the proportion of these companies beating estimates.
As you can see above, an above-average proportion of companies are beating revenue estimates at this stage. This has to count as a positive since estimates for the period had not come down as much as had historically been the case. The reasonableness of estimates ahead of the start of this reporting season can be gauged from the EPS beats percentage, which is tracking below historical periods.
Expectations for the Quarter
The earnings growth trend established in the first three quarters of the year is not expected to change in the last quarter of the year, with tough comparisons to the year-earlier period weighing on growth.
For Q4 as a whole, combining the results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index are currently expected to be up +0.8% on +4.3% higher revenues. The Q4 earnings growth picture improves further when looked at on an ex-Energy basis.
With respect to estimates for the current period (2020 Q1), we got off to a good start, with estimates appearing to nudge up a little at first. But estimates resumed their all-familiar downward trajectory over the last two weeks, with the Coronavirus outbreak adding to the negative revisions trend. A number of major companies with China exposure have explicitly cited the outbreak for negative earnings impact in Q1, with Apple (AAPL) making headlines recently with its updated guidance. The list of other such Coronavirus exposed operators is long, but include such players like Starbucks (SBUX), Wynn Resorts (NASDAQ:WYNN) (WYNN), Royal Caribbean (RCL).
The chart below shows how estimates for the current period (2020 Q1) have evolved since the quarter got underway.
As negative as this revisions trend looks, it is actually a modest improvement over the comparable periods of other recent periods. This means that the revisions trend would have been a lot more favorable had it not been for the Coronavirus impact.
The chart below of quarterly year-over-year earnings growth for the S&P 500 index shows estimates for Q4 and the following 4 quarters and actual results for the preceding 4 quarters.
The earnings growth picture is expected to change as we turn the page on 2019 given the tough comparisons to tax-boosted earnings in 2018, with growth resuming in 2020 Q1, as the above chart shows. The chart below puts earnings and revenue growth expectations for full-year 2019 in the context of where growth has been in recent years and what is expected in the next two years.
The market took the earnings decline in 2019 in the stride, looking ahead to the expected growth resumption this year and beyond. These expectations still hold, though they have started coming down lately, with the impact of the ongoing China virus outbreak a major unknown.
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