S&P 500 Earnings Season Update: May 7, 2021

At this point in time, more S&P 500 companies are beating EPS estimates for the first quarter than average, and beating EPS estimates by a wider margin than average. As a result, the index is reporting higher earnings for the first quarter today relative to the end of last week and relative to the end of the first quarter. The index is now reporting the highest year-over-year growth in earnings since Q1 2010 for Q1. Analysts also expect double-digit earnings growth for the remaining three quarters of 2021. These above-average growth rates are due to a combination of higher earnings for 2021 and an easier comparison to unusually weak earnings in 2020 due to the negative impact of COVID-19 on numerous industries.

Earnings on Track for Fastest Growth Rate in 11 Years

Overall, 88% of the companies in the S&P 500 have reported actual results for Q1 2021 to date. Of these companies, 86% have reported actual EPS above estimates, which is above the five-year average of 74%. If 86% is the final percentage for the quarter, it will mark the 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 22.1% above the estimates, which is also above the five-year average of 6.9%. If 22.1% is the final percentage for the quarter, it will mark the second-highest 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 first quarter today relative to the end of last week and relative to the end of the first 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 first quarter is 49.4% today, compared to an earnings growth rate of 45.8% last week and an earnings growth rate of 23.8% at the end of the first quarter (March 31). Positive earnings surprises reported by companies in multiple sectors (led by the Financials, Consumer Discretionary, and Health Care sectors) 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, Communications Services, and Consumer Discretionary sectors have been the top contributors to the increase in overall earnings for the index since the end of the first quarter.

If 49.4% is the actual growth rate for the quarter, it will mark the highest year-over-year earnings growth reported by the index since Q1 2010 (55.4%). The unusually high growth rate is due to a combination of higher earnings in Q1 2021 and an easier comparison to unusually weak earnings in Q1 2020 due to the negative impact of COVID-19 on numerous industries. Nine sectors are reporting year-over-year earnings growth, led by the Consumer Discretionary, Financials, Materials, and Communication Services sectors. Two sectors are reporting a year-over-year decline in earnings: Utilities and Industrials.

Projected Revenue Growth for 10 of 11 Sectors in the S&P 500

In terms of revenues, 76% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 64%. If 76% is the final percentage for the quarter, it will mark 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 3.7% above the estimates, which is above the five-year average of 1.0%. If 3.7% 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 first quarter is higher now relative to the end of last week and relative to the end of the first quarter. As of today, the S&P 500 is reporting year-over-year growth in revenues of 10.0%, compared to year-over-year growth in revenues of 9.2% last week and year-over-year growth in revenues of 6.2% at the end of the first quarter (March 31). Positive revenue surprises reported by companies in multiple sectors (led by the Utilities, Financials, and Energy 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, Energy, Information Technology, and Communication Services sectors have been the largest contributors to the increase in overall revenues for the index since the end of the first quarter.

If 10.0% is the actual growth rate for the quarter, it will mark the highest year-over-year revenue growth reported by the index since Q2 2018 (10.5%). Ten sectors are reporting year-over-year growth in revenues, led by the Information Technology, Communication Services, and Consumer Discretionary sectors. The Industrials sector is the only sector reporting a year-over-year decline in revenues.

Looking at future quarters, analysts project double-digit earnings growth for the remaining three quarters of 2021, with earnings growth expected to peak in Q2 2021 at 59.5%

The forward 12-month P/E ratio is 21.6, which is above the five-year average and above the 10-year average.

During the upcoming week, 18 S&P 500 companies (including one Dow 30 component) are scheduled to report results for the first quarter.

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