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Durable Earnings Growth Expected

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A big part of the unusually strong earnings growth expected in the Q2 earnings season is due to easy comparisons to last year’s Covid-hit period. But as we have been consistently pointing out, not all of the growth is a result of easy comparisons.

Total Q2 S&P 500 earnings are currently expected to be up +61.9% from the same period last year on +18.2% higher revenues. Estimates have steadily gone up in recent months, with the current +61.9% growth rate up from +50.6% at the start of the quarter on April 1st and +41.6% at the start of January.

Given how strong earnings surprises turned out to be in the preceding reporting cycle (2021 Q1), the final earnings growth tally for 2021 Q1 could be as high as +80%.

The chart below takes a big-picture view of the quarterly earnings and revenue growth pace.

Zacks Investment ResearchImage Source: Zacks Investment Research

The chart below shows the aggregate bottom-up quarterly earnings tallies, actual earnings for the reported periods and estimates for 2021 Q2 and beyond, to give us a better sense of the easy-comps question.

Zacks Investment ResearchImage Source: Zacks Investment Research

As you can see here, 2021 Q2 at $394.8 billion is +61.9% above the Covid-hit $243.8 billion tally achieved in 2020 Q2. You can also see here that 2021 Q2 is +9.8% above the comparable pre-Covid 2019 period.

The chart below presents the big-picture view on an annual basis. As you can see below, 2021 earnings and revenues are expected to be up +35.5% and +10.7%, respectively, which follows the Covid-driven decline of -13.1% in 2020.

Zacks Investment ResearchImage Source: Zacks Investment Research

Please note the double-digit earnings growth expected in each of the next two years. This suggests that the market isn’t looking for a one-off rebound this year, but rather an enduring growth cycle that continues over the next couple of years.

To the extent that this growth outlook can improve as we move into the back half of 2021 will determine whether the overall earnings picture will continue to climb.

Key Reports This Week

The Q2 reporting cycle will really get going as JPMorgan (JPM - Free Report) and the other major banks come out with their fiscal June-quarter results on July 13th. But we (and other data aggregators) count the start of this and other earnings season(s) a little differently. From our standpoint, the Q2 reporting cycle got underway with companies reporting results for their fiscal quarters ending in May.

We have already seen such May-quarter results from 18 S&P 500 members, including Costco (COST - Free Report) , Oracle (ORCL - Free Report) and others. We don’t have any index members on deck reporting results this holiday-shortened week, but there are a dozen or so non-index members that are reporting this week anyway, including bellwether operators like WD 40 Company (WDFC - Free Report) , Levi Strauss & Company (LEVI - Free Report) and others.

We are off to a great start with the 18 S&P 500 members that have reported results already. Total earnings for these 18 companies are up +102.8% from the same period last year on +20.9% higher revenues, with 83.3% beating EPS estimates and 88.9% beating revenue estimates.

It is too early to draw any conclusions from this very small sample of results. But for what it’s worth, this is a better performance from these 18 index members than we have seen in the recent past.

You can see that in the comparison charts below, with the first set of charts putting the earnings and revenue growth rates of these 18 index members in a historical context.

Zacks Investment ResearchImage Source: Zacks Investment Research

The below charts put the EPS and revenue beats % for these 18 index members in a historical context.

Zacks Investment ResearchImage Source: Zacks Investment Research

Bank Industry Earnings Preview 

The big banks will kick-start the Q2 reporting cycle for the Finance sector as JPMorgan, Wells Fargo (WFC - Free Report) and Goldman Sachs (GS - Free Report) come out with Q2 results before the market’s open on July 13th.  The year-over-year comparisons are particularly easy for these players, as they all reported big reserve additions in the 2020 period. But comparisons are expected to be tough for trading revenues, which got a huge boost from last year’s rebound from the March lows.

Wells Fargo isn’t much of a capital markets player, so trading volumes aren’t a factor in its results. But that will be an issue for Goldman and JPMorgan. Loan portfolios have been lackluster thus far and we will likely see a replay of that trend in the Q2 numbers. The market will be looking for management commentary on trends they see for the second half of the year with respect to credit demand from households as well as businesses.

The investment banking business remains red hot, though the easing of the ‘SPAC mania’ has likely weighed on IPO volumes in Q2. That said, the overall trend should remain strong.

Total Finance sector earnings are expected to be up +93.2% from the same period last year on +3%, which would follow the +98.3% earnings growth on +7.2% higher revenues in 2021 Q1. The sector’s 2020 Q2 earnings had dropped -45.2% on a year-over-year basis.

The table below shows the sector’s Q2 earnings and revenue growth expectations at the medium or ‘M’ industry level in the context of what was reported in the preceding quarter and what is expected in the next one.

Zacks Investment ResearchImage Source: Zacks Investment Research

The chart below puts the sector’s Q2 aggregate earnings expectations in the context of what has been reported in the preceding 8 periods and estimates for the coming 3 quarters.

Zacks Investment ResearchImage Source: Zacks Investment Research

For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>Q2 Earnings Growth Reflects More than Easy Comparisons

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