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Will the S&P 500 Report Record-High EPS in 2020?

Earnings

By John Butters  |  December 11, 2019

For 2020, the bottom-up EPS estimate (which reflects an aggregation of the median EPS estimates for all of the companies in the index) is $178.57. If $178.57 is the final number for the year, it will mark a record-high EPS number for the index. However, what is the likelihood that $178.57 will be the final EPS value for the S&P 500 in 2020? How accurate is the bottom-up EPS estimate one year in advance?

Over the past 20 years (1999 – 2018), the average difference between the bottom-up EPS estimate at the beginning of the year (December 31) and the final EPS number for that same year has been 6.9%. In other words, industry analysts on average have overestimated the final EPS number by 6.9% one year in advance. Analysts overestimated the final value (i.e. the final value finished below the estimate) in 13 of the 20 years and underestimated the final value (i.e. the final value finished above the estimate) in the other seven years. For the purposes of this analysis, the final EPS number for a year is the EPS number recorded two months after the end of each calendar year (February 28) to capture the actual annual EPS results reported by most companies during the fourth quarter earnings season.

EPS at Start of Year vs Actual EPS

However, this 6.9% average includes three years in which there were substantial differences between the bottom-up EPS estimate at the start of the year and the final EPS number: 2001 (+36%), 2008 (+43%), and 2009 (+28%). In 2001, the country endured the 9/11 attacks.  In 2008 and 2009, the country was in the midst of economic recession. If these three years were excluded, the average difference between the bottom-up EPS estimate one year prior to the end of that year and the final EPS number for that year would be 1.8%.

If one applies the average overestimation of 6.9% to the current 2020 EPS estimate (assuming the estimate changes little between now and December 31), the final value for 2020 would be $166.22. If one applies the average overestimation of 1.8% (excluding the years 2001, 2008, and 2009) to the current 2020 EPS estimate, the final value for 2020 would be $175.33. Based on estimates as of today, EPS of either $166.22 or $175.33 would reflect a new record-high for the S&P 500.

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John Butters

Vice President, Senior Earnings Analyst, Investor Relations

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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