For Immediate Release
Chicago, IL – January 14, 2021 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Netflix, Inc.
NFLX
, The Procter & Gamble Company
PG
, International Business Machines Corporation
IBM
and CSX Corporation
CSX
.
Positive Start to Q4 Earnings Season
We are off to a great start in Q4 earnings season, with the big banks coming out with a notably improved profitability picture relative to what they were able to show in preceding periods. This reconfirms our view of a steadily improving earnings outlook that we have been highlighting over the last few months.
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, Citigroup and Wells Fargo – released more than $5 billion combined in loan loss reserves 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 favorable read-through for all sectors, particularly the economically sensitive ones.
The market’s lukewarm reaction to these bank results is solely a function of how strong these stocks have been over the last couple of months.
Bank stocks have lagged the broader market over the past year, but they have been clearly in the lead over the past three months. JPMorgan and Citigroup shares are up +0.8% and down -20.1% over the past year, respectively, when the S&P 500 was up +16.2%. But over the last three months, JPMorgan shares have gained +36.4% and Citigroup is up an impressive +49.6%, handily outperforming the S&P 500 index’s +9.5% gain. The earnings releases appear to have served as a convenient excuse to cash in some of those gains.
The Q4 reporting cycle accelerates meaningfully this week, with more than 90 companies on deck to report results, including 40 S&P 500 members. This week’s reporting docket is dominated by banks and brokers, but we do have a number of bellwethers like
Netflix
,
Procter & Gamble
,
IBM
,
CSX Corp.
and others.
Earnings Season Scorecard
We now have Q4 results from 26 S&P 500 members or 5.2% of the index’s total membership. Total earnings (or aggregate net income) for these 26 companies are up 7.6% from the same period last year on 1.9% lower revenues, with 96.2% beating EPS estimates and 73.1% beating revenue estimates.
This is a very early stage in the reporting cycle, and these numbers will evolve as more companies come out with Q4 results. But it is nevertheless clear from the above comparisons that we have made a very good start, particularly relative to the last few quarters.
For the
Finance sector
, we now have Q4 results from 20.6% of the sector’s total market capitalization in the S&P 500 index, and a big part of the remainder will report results in the coming week. Total earnings for these Finance companies are up +14.4% from the same period last year on -3.4% lower revenues, with 96.2% beating EPS estimates and 73.1% 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.
The Overall Earnings Picture
Looking at Q4 as a whole, total earnings for the S&P 500 index are expected to be down 7.8% from the same period last year on 0.3% 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 (-101.1% earnings decline), Energy (-93.1%) and Consumer Discretionary (-72.2%).
On the positive side, Q4 earnings are expected to be up +83.9% at Autos, +27.4% at Construction and +9.4% at Basic Materials. Finance sector earnings are now expected to be up +4.5% on -2.4% lower revenues.
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.
As you can see, growth is expected to resume this year, with full-year 2021 earnings for the S&P 500 index currently expected to be up 22.8% 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:
>>>> Q4 Earnings Season Gets Underway
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