Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
- Total S&P 500 earnings are expected to decline -3.6% from the same period last year on +4.8% higher revenues. Growth is expected to be negative for 9 of the 16 Zacks sectors, with Technology and Energy as the biggest drags. This will be the firs t earnings decline since 2016 Q2.
- Technology sector earnings are expected to decline -10% from the same period last year on +3% higher revenues, with the semiconductor space as the biggest drag. Excluding the Tech sector's weak growth in Q1, total earnings for the rest of the index would be down by -1.5% from the year-earlier period.
- Estimates have been steadily coming down, both for Q1 as well as full-year 2019, with the magnitude of negative revisions one of the highest in recent years.
- The Earnings season has gotten underway, with results from 6 S&P 500 index members already out. Total earnings for these 6 companies are down -3.6% on +5.3% higher revenues, with 83.3% beating EPS estimates and 66.7% beating revenue estimates.
- For the small-cap S&P 600 index, total Q1 earnings are expected to be down -7.7% from the same period last year on +4.3% higher revenues.
- For full-year 2019, total earnings for the S&P 500 index are expected to be up +2.5% on +4% higher revenues, which would follow the +23.3% earnings growth on +8.8% higher revenues in 2018.
- Estimates for 2019 have been steadily coming down, with the current +2.5% growth rate down from +9.8% in early October 2018.
- The implied 'EPS' for the index, calculated using current 2019 P/E of 17.4X and index close, as of March 19th, is $163.17. Using the same methodology, the index 'EPS' works out to $181.03 for 2020 (P/E of 15.6X). The multiples for 2019 and 2020 have been calculated using the index's total market cap and aggregate bottom-up earnings for each year.
We are still a few weeks away from big bank earnings results that now serve as the unofficial starting point of the reporting cycle since Alcoa relinquished that role following its split. Officially, however, the reporting cycle got underway with the Costco (COST), AutoZone (AZO), FedEx (FDX) and other reports.
Costco, AutoZone and a number of other major players on deck to report results in the next few days use fiscal quarters that end in February. All of these February-quarter reports get counted as part of our Q1 tally. We will have seen such Q1 results from almost two dozen S&P 500 members by the time JPMorgan (JPM) and Wells Fargo (WFC) kick-off the earnings season on April 12th.
Estimates for the period have been steadily coming down, as the chart below of Q1 earnings growth expectations show.
This is only an estimate at this stage and actual March-quarter earnings growth could very well be in positive territory. But it nevertheless shows that the growth picture will be a lot more challenged and problematic in the coming quarters. The chart below o f quarterly earnings and revenue growth shows this picture.
The very strong growth we experienced in 2018 was primarily because of the tax cut legislation that was enacted towards the end of 2017. The pure arithmetic of the lower corporate tax rate represented a one-time boost to corporate bottom-lines that will be part of base comparisons for this year. On top of this comparability issue is the impact of slowing economic growth, particularly beyond the U.S. shores.
Recent revisions trend shows that these low growth expectations for the coming quarters still remain vulnerable to further downward revisions. In other words, it is reasonable for market participants to nurse some doubts about the current earnings backdrop.
The Could Be the Fastest Way to Grow Wealth in 2019
Research indicates one sector is poised to deliver a crop of the best-performing stocks you'll find anywhere in the market. Breaking news in this space frequently creates quick double- and triple-digit profit opportunities.
These companies are changing the world - and owning their stocks could transform your portfolio in 2019 and beyond. Recent trades from this sector have generated +98% , +119% and +164% gains in as little as 1 month.
Click here to see these breakthrough stocks now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportWells Fargo & Company (WFC): Free Stock Analysis ReportJPMorgan Chase & Co. (JPM): Free Stock Analysis ReportFedEx Corporation (FDX): Free Stock Analysis ReportCostco Wholesale Corporation (COST): Free Stock Analysis ReportAutoZone, Inc. (AZO): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment Research