S&P 500 Earnings Season Preview: January 10, 2020

In terms of estimate revisions for companies in the S&P 500, analysts made larger cuts than average to earnings estimates for Q4 2019 during the quarter. On a per-share basis, estimated earnings for the fourth quarter decreased by 4.7% from September 30 through December 31. This percentage decline was larger than the five-year average (-3.3%), the 10-year average (-3.1%), and the 15-year average (-4.4%) for a quarter.

However, a smaller percentage of S&P 500 companies have lowered the bar for earnings for Q4 2019 relative to recent averages. Of the 107 companies that have issued EPS guidance for the fourth quarter, 73 have issued negative EPS guidance and 34 have issued positive EPS guidance. The percentage of companies issuing negative EPS guidance is 68% (73 out of 107), which is below the five-year average of 70%.

Because of the net downward revisions to earnings estimates, the estimated (year-over-year) earnings decline for Q4 2019 is -2.0% today compared to the estimated (year-over-year) earnings growth rate of 2.5% on September 30. If -2.0% is the actual decline for the quarter, it will mark the first time the index has reported four straight quarters of year-over-year declines in earnings since Q3 2015 through Q2 2016. Five sectors are predicted to report year-over-year earnings growth, led by the Utilities and Financials sectors. Six sectors are projected to report a year-over-year decline in earnings, led by the Energy, Consumer Discretionary, and Materials sectors.

Because of the net downward revisions to revenue estimates, the estimated (year-over-year) revenue growth rate for Q4 2019 is 2.6% today compared to the estimated (year-over-year) revenue growth rate of 3.6% on September 30. If 2.6% is the actual growth rate for the quarter, it will mark the lowest revenue growth rate for the index since Q2 2016 (-0.2%). Eight sectors are projected to report year-over-year growth in revenues, led by the Health Care, Utilities, and Communication Services sectors. Three sectors are predicted to report a year-over-year decline in revenues, led by the Materials and Energy sectors.

Looking at future quarters, analysts see earnings growth between 4.5% and 6.5% for the first half of 2020.

The forward 12-month P/E ratio is 18.4, which is above the five-year average and above the 10-year average.

During the upcoming week, 24 S&P 500 companies (including three Dow 30 components) are scheduled to report results for the fourth quarter.