Zacks Earnings Trends Highlights: Apple, Amazon, Alphabet, Microsoft and Facebook
For Immediate Release
Chicago, IL – August 27, 2020 – Zacks Director of Research Sheraz Mian says, "The revisions trend continues to improve, though the pace of improvement has moderated in recent days as the Q2 reporting cycle has moved towards conclusion"
Big Tech's Earnings Power
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:
- The revisions trend continues to improve, though the pace of improvement has moderated in recent days as the Q2 reporting cycle has moved towards conclusion. This improvement in earnings estimates remains a notable shift in the post-pandemic earnings picture.
- Total earnings for the 484 S&P 500 members that have reported Q2 results already are down -32.3% on -9.5% lower revenues, with 80.4% beating EPS estimates and 64.0% beating revenue estimates.
- This is the lowest earnings growth pace since the last earnings downturn following the 2008 recession, but the proportion of these companies beating consensus estimates, particularly EPS estimates, is tracking above historical trends.
- For 2020 Q3, total S&P 500 earnings are expected to decline -23.9% on -3.2% lower revenues. This is an improvement from the -26.5% earnings decline expected at the start of July.
- For full-year 2020, total earnings for the S&P 500 index are currently expected to be down -21.0% on -4.9% lower revenues. As with Q3 estimates, full-year estimates have been going up since early July. For reference, S&P 500 earnings declined -19.1% in 2008 and -3.4% in 2009, though that was admittedly a different type of downturn.
- Growth is expected to resume next year, thanks to easy comparisons, but the dollar level of earnings in 2021 will still be below the 2019 level.
- The implied ‘EPS’ for the S&P 500 index, calculated using current 2020 P/E of 27.2X and index close, as of August 25th, is $126.75, down from $160.41 in 2019. Using the same methodology, the index ‘EPS’ works out to $158.62 for 2021 (P/E of 21.7X). The multiples for 2020 and 2021 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.
- Please note that while full-year 2021 earnings for the S&P 500 index are currently expected to be up +25.1% from the 2020 level, the absolute dollar amount of 2021 earnings estimates remain below the 2019 level.
- For the small-cap S&P 600 index, we have Q2 earnings from 559 index members. Total earnings for these small-cap companies are down -56.5% from the same period last year on -16.7% lower revenues, with 70.8% beating EPS estimates and 65.5% beating revenue estimates.
- The proportion of S&P 600 members beating Q2 EPS and revenue estimates is significantly above historical levels, suggesting that estimates for the small-cap companies were even lower than their large-cap peers.
The Market Haves & Have-Nots
A big part of market discourse lately has been centered around a lack of breadth, with a handful of companies accounting for an ever-growing share of the market-cap weighted S&P 500 index.
Specifically, the top 5 Tech companies in the index –Apple AAPL, Amazon AMZN, Alphabet GOOGL, Microsoft MSFT and Facebook FB – have been impressive stock market performers this year, with the group up +49% on average vs. the +4% gain for the index as a whole. The market gains for these 5 range from an +81% gain for Amazon to a ‘mere’ +19.9% for Alphabet in the year-to-date period, with the other three falling somewhere in the middle of that range.
As a result, these 5 Tech majors now collectively account for 24.2% of the S&P 500 index’s total market capitalization, double the proportion of the Finance sector in the index. This means that about a quarter of this market-cap weighted index, which typically serves as a proxy for the stock market as a whole, is now comprised of these 5 companies.
While the index as a whole is at an all-time record level currently, thanks to these high flyers, a big proportion of its membership is still in negative territory for the year. To be specific, 275 S&P 500 members are down this year, as of August 26th.
The issue of index concentration is a bigger discussion, and our focus in this earnings-centric publication remains on the broader earnings outlook. To that end, this group of 5 Tech companies is on track to bring in 15.2% of the S&P 500 index’s total earnings in 2020, up from 11.2% of the total in 2019.
The Covid-19 pandemic has been a big blow to corporate profitability this year, with aggregate earnings for the S&P 500 index currently expected to be down -21% in 2020. But these 5 Tech companies (and many others in the Tech space) are enormously profitable, both during the pandemic as well as on the other side.
The market appears to be rewarding the earnings growth certainty of these Tech leaders in a backdrop of historically low interest rates. We are sympathetic to that view, but remain cognizant of the fact that some of these multiples are way too rich for our taste.
Improving Earnings Outlook
As we have been consistently pointing out over the last two months, the revisions trend remains positive. We are seeing a similar improvement in estimates for 2020 Q4 and full-year 2021 as well.
The recent flow of economic readings has been broadly positive, suggesting that the hoped-for recovery is firmly in place. This is showing up in earnings estimates as well, which have started improving in a meaningful way, as indicated earlier. The question at this stage is whether the improving trend can continue even as the underlying health issue remains unresolved.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Investment Research
800-767-3771 ext. 9339
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
Click to get this free report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Apple Inc. (AAPL): Free Stock Analysis Report
Facebook, Inc. (FB): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.