S&P 500 Earnings Season Update: February 12, 2021

At this point in time, more S&P 500 companies are beating EPS estimates for the fourth quarter than average, and beating EPS estimates by a wider margin than 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. Due to this increase in earnings over the past few weeks, the index is now reporting year-over-year growth in earnings in Q4 2020 for the first time since Q4 2019. Analysts expect double-digit earnings growth for all four quarters of 2021.

Companies Continue to Beat Earnings Estimates

Overall, 74% of the companies in the S&P 500 have reported actual results for Q4 2020 to date. Of these companies, 80% have reported actual EPS above estimates, which is above the five-year average of 74%. If 80% is the final percentage for the quarter, it will mark for the third-highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. In aggregate, companies are reporting earnings that are 15.1% above the estimates, which is also above the five-year average of 6.3%. If 15.1% is the final percentage for the quarter, it will mark the third-largest earnings surprise percentage reported by the index since FactSet began tracking this metric in 2008.

Due to the number and magnitude of 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 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 2.9% today, compared to an earnings growth rate of 1.8% last week and a year-over-year earnings decline of -9.3% at the end of the fourth quarter. Positive earnings surprises reported by companies in multiple sectors (led by the Communication Services sector) were responsible for the improvement in overall earnings for the index during the past week. Positive earnings surprises reported by companies in the Financials, Information Technology, and Communication Services sectors have been the top contributors to the overall increase in earnings for the index since the end of the fourth quarter.

If 2.9% is the actual growth rate for the quarter, it will mark the first time the index has reported year-over-year earnings growth since Q4 2019 (0.8%), and it will mark the highest year-over-year earnings growth reported by the index since Q4 2018 (13.2%). Seven sectors are reporting year-over-year earnings growth, led by the Materials, Financials, and Information Technology sectors. Four sectors are reporting a year-over-year decline in earnings, led by the Energy and Industrials sectors.

Companies Are Exceeding Revenue Estimates by 3.3%

In terms of revenues, 78% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 62%. If 78% is the final percentage for the quarter, it will tie the mark for the second-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 3.3% above the estimates, which is also above the five-year average of 0.9%. If 3.3% is the final percentage for the quarter, it will mark the largest revenue surprise percentage reported by the index since FactSet began tracking this metric in 2008.

Due to the number and magnitude of these 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. As of today, the S&P 500 is reporting year-over-year growth in revenues of 2.8%, compared to year-over-year growth in revenues of 2.7% last week and year-over-year growth in earnings of 0.1% at the end of the fourth quarter. 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 Financials, Information Technology, and Communication Services sectors have been the largest contributors to the increase in the overall revenues for the index since the end of the fourth quarter.

If 2.8% is the actual growth rate for the quarter, it will mark the first time the index has reported year-over-year revenue growth since Q1 2020 (0.8%), and it will mark the highest year-over-year revenue growth reported by the index since Q4 2019 (3.4%). Eight sectors are reporting year-over-year growth in revenues, led by the Heath Care, Information Technology, and Consumer Discretionary sectors. Three sectors are reporting a year-over-year decline in revenues, led by the Energy sector.

Looking at future quarters, analysts project double-digit earnings growth for all four quarters of 2021.

The forward 12-month P/E ratio is 22.2, which is above the five-year average and above the 10-year average.

During the upcoming week, 51 S&P 500 companies (including one Dow 30 component) are scheduled to report results for the fourth quarter.

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