S&P 500 Earnings Season Update: February 11, 2022

At this point in time, the number of companies beating EPS estimates is above the five-year average, but the amount by which companies are beating estimates is equal to the five-year average. As a result, the index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the quarter. The index is reporting earnings growth of more than 30% for the fourth straight quarter and earnings growth of more than 45% for the full year. These above-average growth rates are due to a combination of higher earnings in 2021 and an easier comparison to weaker earnings in 2020 due to the negative impact of COVID-19 on a number of industries.

Blended Earnings Growth for Q4 Now Above 30%

Overall, 72% of the companies in the S&P 500 have reported actual results for Q4 2021 to date. Of these companies, 77% have reported actual EPS above estimates, which is above the five-year average of 76%. In aggregate, companies are reporting earnings that are 8.6% above estimates, which is equal to the five-year average of 8.6%.

Due to these positive EPS surprises, the index is reporting higher earnings for the fourth quarter today relative to the end of last week and relative to the end of the fourth quarter. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings growth rate for the fourth quarter is 30.3% today, compared to an earnings growth rate of 29.2% last week and an earnings growth rate of 21.3% at the end of the fourth quarter (December 31).

Positive earnings surprises reported by companies in multiple sectors, led by the Health Care sector, were responsible for the improvement in overall earnings for the index during the past week. Positive earnings surprises reported by companies in the Consumer Discretionary, Information Technology, Financials, and Health Care sectors have been the top contributors to the overall increase in earnings for the index since the end of the fourth quarter.

If 30.3% is the actual growth rate for the quarter, it will mark the fourth straight quarter of earnings growth above 30% for the index. The last time the index reported four straight quarters of earnings growth above 30% was Q4 2009 through Q3 2010. The unusually high growth rate is due to a combination of higher earnings in Q4 2021 and an easier comparison to lower earnings in Q4 2020 due to the negative impact of COVID-19 on a number of industries. Ten sectors are reporting year-over-year earnings growth, led by the Energy, Industrials, Materials, and Consumer Discretionary sectors.

Revenue Growth Seen Across All 11 Sectors

In terms of revenues, 77% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 68%. If 77% is the final percentage for the quarter, it will tie the mark (with Q1 2021 and Q1 2018) for the fourth highest percentage of S&P 500 companies reporting a positive revenue surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting revenues that are 2.7% above the estimates, which is also above the five-year average of 1.5%. If 2.7% is the final percentage for the quarter, it will tie the mark (with Q3 2021 and Q3 2020) for the fourth highest revenue surprise percentage reported by the index since FactSet began tracking this metric in 2008.

Due to these positive revenue surprises, the blended revenue growth rate for the fourth quarter is higher now relative to the end of last week and relative to the end of the fourth quarter. The blended revenue growth rate for the fourth quarter is 15.3% today, compared to a revenue growth rate of 15.0% last week and a revenue growth rate of 12.8% at the end of the fourth quarter (December 31).

Positive revenue surprises reported by companies in multiple sectors were responsible for the increase in overall revenues for the index over the past week. Positive revenue surprises reported by companies in the Energy sector have been the largest contributor to the increase in the overall revenues for the index since the end of the fourth quarter.

If 15.3% is the actual growth rate for the quarter, it will mark the third highest (year-over-year) revenue growth rate reported by the index since FactSet began tracking this metric in 2008, trailing only the previous two quarters. All 11 sectors are reporting year-over-year growth in revenues, led by the Energy and Materials sectors.

Looking Ahead

For the full year, the blended earnings growth rate for CY 2021 is 47.4%. Looking ahead to the first half of CY 2022, analysts expect earnings growth of 5.5% for Q1 2022 and 4.8% for Q2 2022.

The forward 12-month P/E ratio is 19.8, which is above the five-year average (18.6) and above the 10-year average (16.7). However, It is below the forward P/E ratio of 21.3 recorded at the end of the fourth quarter (December 31), as prices have decreased while EPS estimates have increased since December 31.

During the upcoming week, 62 S&P 500 companies (including two Dow 30 components) are scheduled to report results for the fourth quarter.

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