S&P 500 CY 2021 Earnings Preview: Largest YoY Earnings Growth Since 2010

Following the expected declines in both overall earnings and revenues in 2020, the S&P 500 is projected to see rebounds in both measures in 2021, with growth across all 11 sectors.

CY 2021 Earnings Growth: 22.1%

The estimated (year-over-year) earnings growth rate for the S&P 500 for CY 2021 is 22.1%, which is above the 10-year average (annual) earnings growth rate of 10.0%. If 22.1% is the actual growth rate for the year, it will mark the largest annual earnings growth rate for the index since CY 2010 (39.6%). The unusually large growth rate can be attributed to both an easy comparison to weak earnings in CY 2020 (due to the impact of COVID-19) and an expected improvement in earnings in 2021. At the sector level, all 11 sectors are projected to report year-over-year growth in earnings, led by the Energy (growth rate N/A due to a loss for the sector in CY 2020), Industrials (78.0%), and Consumer Discretionary (58.9%) sectors.

The Energy sector is expected to report a profit of $24.0 billion in CY 2021 compared to an expected loss of $3.7 billion in CY 2020. Due to this expected loss in CY 2020, a year-over-year growth rate can’t be calculated for the sector. Higher expected oil prices are helping to drive the increase in earnings for the sector, as the estimated average price of oil in CY 2021 ($45.75) is 17% higher than the average price of oil in CY 2020 ($39.02) to date. At the sub-industry level, all five sub-industries in the sector are projected to report year-over-year growth in earnings. The three sub-industries projected to see the largest (year-over-year) dollar-level increases in earnings are Integrated Oil & Gas (+$16.6 billion), Oil & Gas Exploration & Production (+$5.4 billion), and Oil & Gas Refining & Marketing (+$4.8 billion).

The Industrials sector is expected to report the largest earnings growth rate of all 11 sectors at 78.0%. All 12 industries in this sector are expected to report growth in earnings. Nine of these 12 industries are expected to report double-digit growth in earnings, led by the Aerospace & Defense (43%) and Industrial Conglomerates (37%). Due to projected losses in both CY 2021 and CY 2020, a growth rate can’t be calculated for the Airlines industry. However, this industry is projected to see the largest (year-over-year) improvement in dollar-level earnings of all 12 industries in the sector at $27.0 billion.

The Consumer Discretionary sector is expected to report the second-largest (year-over-year) earnings growth rate of all 11 sectors at 58.9%. Nine of the 10 industries in this sector are expected to report earnings growth. Eight of these nine industries are expected to report double-digit growth in earnings, led by the Automobiles (91%) and Auto Components (91%). Due to a projected loss in CY 2020, a growth rate can’t be calculated for the Hotels, Restaurants, & Leisure industry. However, this industry is projected to see the largest (year-over-year) improvement in dollar-level earnings of all 10 industries in the sector at $15.3 billion.

CY 2021 Revenue Growth: 7.9%

The estimated (year-over-year) revenue growth rate for CY 2021 is 7.9%, which is above the 10-year average (annual) revenue growth rate of 4.5%. If 7.9% is the actual decline for the year, it will mark the largest annual revenue growth rate for the index since CY 2018 (8.9%). The increase can be attributed to both an easy comparison to weak revenues in CY 2020 (due to the impact of COVID-19) and an expected improvement in revenue in 2021. At the sector level, all 11 sectors are expected to report year-over-year growth in revenues, led by the Energy, Consumer Discretionary, and Communication Services sectors.

The Energy sector is expected to report the highest (year-over-year) revenue growth rate of all 11 sectors at 15.2%. Higher expected oil prices are helping to drive the increase in earnings for the sector, as the estimated price of oil in CY 2021 ($45.75) is 17% higher than the average price of oil in CY 2020 ($39.02) to date. At the sub-industry level, four of five sub-industries in the sector are projected to report growth in revenues. Three of these sub-industries are predicted to report double-digit growth: Oil & Gas Exploration & Production (24%), Integrated Oil & Gas (19%), and Oil & Gas Refining & Marketing (16%).

The Consumer Discretionary sector is expected to report the second-largest (year-over-year) revenue growth rate of all 11 sectors at 12.8%. All 10 industries in this sector are expected to report revenue growth. Seven of these 10 industries are expected to report double-digit growth in revenue, led by the Hotels, Restaurants, & Leisure (34%) and Auto Components (33%) industries.

The Communication Services sector is expected to report the third-largest (year-over-year) revenue growth rate of all 11 sectors at 11.9%. All five industries in this sector are expected to report revenue growth. Three of these industries are expected to report double-digit growth in revenue: Interactive Media & Services (21%), Entertainment (16%), and Wireless Telecommunication Services (11%).

Author’s Note: The FactSet Earnings Insight report will not be published on December 25 or January 1. The next edition of the report will be published on January 8.

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