Tesla Inclusion Impact S&P 500 Earnings Estimates
Brian Gilmartin | Dec 27, 2020 12:08AM ET
The addition of Tesla (NASDAQ:TSLA) (TSLA this past week to the S&P 500 index has lowered S&P 500 estimates and raised the benchmark’s P/E, all of which was eloquently explained by David Aurelio of Refinitiv last week, in anticipation of Tesla joining the index. Here was last’s week post with the attached article from David, but here is the paragraph that sums up the influence of Tesla’s addition to the benchmark on S&P 500 EPS and revenue:
h3 Exhibit 3: Y/Y Growth Rates for the S&P 500 with Current Constituents vs. Tesla Inclusion vs. Tesla/h3The addition of Tesla to the S&P 500 will result in a reduction to EPS, due to Tesla’s high market cap to earnings ratio. For example, TSLA’s price to 2021 earnings is 161.3. The index is expected to see 2021 earnings fall 1.3% to $168.84 per share. Earnings for the consumer discretionary sector are forecasted to increase 1.1% to $13.33 per share and there is an anticipated 23.5% increase to $1.72 per share for the automobiles industry. As a consequence of these reductions to earnings, price to 2021 earnings will increase 1.4% to 22.2 for the index, 10.7% to 35.1 for the sector, and 410.3% to 38.7 for the industry.
- The forward 4-quarter estimate of $159.01 was roughly $2 lower versus last week’s $161.17
- The PE ratio on the forward estimate rose to 23.3 vs last week’s 23.0.
- The S&P 500 Earnings yield fell to 4.29% vs last week’s 4.34%.
- The average S&P 500 EPS growth rate of calendar 2020 and 2021 is now 3% versus the 4% of the last several months.
Last Friday night, December 18th, 2020, the big news was that the Fed would start allowing the banks and brokerage companies to repurchase their own stock again.
Here’s an updated spreadsheet with “expected” Financial sector EPS and revenue growth estimates through Q3 ’21:
Get The News You Want
The two left-hand columns are expected full-year calendar 2020 and 2021 EPS growth rates for the Financial sector.
The five columns to the right are the same Financial sector EPS broken down by quarter.
The rapid improvement in Q3 ’20 (now fully reported) was mostly due to credit losses coming in far better than what the big banks had reserved for or were expecting.
Readers may not fully see the impact of the increased share repurchase until January ’21 since many banks will likely announce their share repurchase intentions with Q4 ’20 financial results and full-year 2021 guidance.
S&P 500 forward eps curve:
The attached “forward EPS curve” for the S&P 500 took a little whack this past week with the Tesla addition.
Let’s see how the data unfolds over the next few weeks.
h2 Summary /h2Analyst revisions have slowed for now, but they will start to pick up after January 4th, 2021 when the Street returns and analysts start to update their December ’20 numbers after talking to the coverage (i.e. the companies they follow).
Bullish sentiment is so prevalent now it is worrisome. I don’t have any particular 2021 insight that readers haven’t heard already, but the bullish sentiment is forcing me to become somewhat less excited.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.