For Immediate Release
Chicago, IL – January 25, 2021 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Johnson & Johnson JNJ, The Boeing Company BA, Facebook, Inc. FB, Apple Inc. AAPL and Tesla, Inc. TSLA.
Q4 and 2021 Earnings Estimates Keep Going Up
We are off to a great start in the Q4 earnings season, with a historically high proportion of the reporting companies not only beating consensus EPS and revenue estimates, but also providing positive and reassuring guidance and commentary about the current and coming periods. This is helping sustain the positive revisions trend that has been in place since July 2020.
We expect this favorable trend to strengthen and accelerate as we get into the heart of the Q4 earnings season this week, with more than 350 companies on deck to report results, including 113 S&P members. By the end of this week, we will have seen Q4 results from more than 35% of S&P 500 members.
Importantly, this week's line-up includes a representative cross section of the economy, ranging from traditional bellwethers like Johnson & Johnson and Boeing to new leaders like Facebook, Apple, Tesla and many others in the middle.
By the end of this week, we will have a lot more confidence in our initial positive view of the Q4 earnings season.
Earnings Season Scorecard (as of Friday, January 21st)
We now have Q4 results from 66 S&P 500 members or 13.2% of the index's total membership. Total earnings (or aggregate net income) for these 66 companies are up +0.3% from the same period last year on +0.6% higher revenues, with 87.9% beating EPS estimates and 78.8% beating revenue estimates.
The Q4 results from these index members compare favorably to what we had seen from the same group of companies in the recent past.
Of the major sectors, the Finance sector is heavily represented in the results at this stage, though we have seen a sizable proportion of the Transportation sector's results as well.
For the Finance sector, we now have Q4 results from 44% of the sector's total market capitalization in the S&P 500 index. Total earnings for these Finance companies are up +17.2% from the same period last year on +1.9% higher revenues, with 88.9% beating EPS estimates and 74.1% beating revenue estimates.
This is a notably better performance than we have seen from these banks in recent quarters, particularly in the first three quarters of the year. As we mentioned last week, the positive bank results aren't just reflective of business conditions in the last quarter of 2020, but rather a function of growing optimism about the coming quarters, notwithstanding the elevated infection rates and hiccups on the vaccination front.
The three major banks – JPMorgan, Citi and Wells Fargo – combined released more than $5 billion in loan loss reserves that they had set aside in the first three quarters of the year to cover loans going bad as a result of the pandemic. In effect, these banks are saying, through these reserve releases, that they expect economic conditions in the coming quarters to be stronger relative to what they had originally modeled. This has a favorable read-through for all sectors, particularly the economically sensitive ones.
The Overall Earnings Picture
Looking at Q4 as a whole, total earnings for the S&P 500 index are expected to be down -5.3% from the same period last year on +0.6% higher revenues, with 9 of the 16 Zacks sectors expected to earn less than the year-earlier period.
Sectors with the weakest growth remain the same ones that struggled in the first three quarters of the year, including Transportation (-102.3% earnings decline), Energy (-95.9%), and Consumer Discretionary (-74%).
On the positive side, Q4 earnings are expected to be up +89.3% at Autos, +27.6% at Construction, +10.5% at Basic Materials and +13.4% at the Finance sector. Excluding Finance's help, Q4 earnings for the rest of the S&P 500 index would be down -10%, instead of -5.3%.
The growth picture is expected to improve meaningfully from the current period (2021 Q1) and onwards. The very strong growth in Q2 reflects the easy comparisons to 2020 Q2 when profitability bottomed following the Covid-19 hit.
Growth is expected to resume this year, with full-year 2021 earnings for the S&P 500 index currently expected to be up +23.6% relative to 2020 estimates.
Estimates for 2021 have been steadily going up over the last six months. But we strongly feel that there is significant room for further positive revisions as the overall macro backdrop stabilizes and gets clearer, particularly in the second half of the year.
For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Early Q4 Results Show an Improving Earnings Picture
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