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Taking Stock of Small-Cap Earnings

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Our overall take on the Q2 earnings season, which is now in its final phase, has consistently been very positive. The notable positives in the earnings story include broad-based growth, material momentum on the revenue side and continued positive revisions to estimates for the current period (2021 Q3).

Please note that when we are discussing corporate earnings in the aggregate, we are using the S&P 500 index (SPY - Free Report) as the handy proxy. The thinking behind this assumption is that the breadth and diversity of this large-cap index allows us to capture all business trends across all industries and sectors.

This is a fair assumption, but we should keep in mind that there are aspects of smaller and younger companies that are different from larger and more mature companies.

We provide plenty of coverage for what’s happening with the large-cap earnings picture, the latest being this week’s Earnings Trends report >>>> Strong Retail Sector Earnings

This note takes a look at the 2021 Q2 earnings season and the evolving earnings picture for the current and coming quarters for the small-cap S&P 600 (SPSM - Free Report) index to see if the aforementioned view makes sense. 

Q2 Earnings Season Scorecard

For the S&P 600 index, we now have Q2 results from 561 companies or 93.3% of the index’s total membership. Total earnings for these companies are up +205.5% from the same period last year on +35.2% higher revenues, with 69.3% beating EPS estimates and 80.7% beating revenue estimates. The proportion of these 561 S&P 600 members that have beaten both EPS and revenue estimates is 61.3%.

The comparison charts below put the Q2 performance in a historical context. For reference, we have also provided the corresponding comparisons for the large-cap S&P 500 index.

The EPS and revenue beats percentages for the S&P 600 (SPSM - Free Report) index.

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Image Source: Zacks Investment Research

Beats % for the S&P 500 index.

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Image Source: Zacks Investment Research

What we see from this comparison is that most small-cap companies beat estimates as well, but the percentages for the large-cap index are effectively in record territory, while the small-cap index figures are merely good.

This variance is even clearer when we compare the Q2 blended beats percentages, the proportion of these companies beating both EPS and revenue estimates, to other recent periods

Blended Beats % for S&P 600.

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Image Source: Zacks Investment Research

Blended Beats % for S&P 500.

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Image Source: Zacks Investment Research

Looking at Q2 as a whole for the small-cap index, combining the actual results that have come out with estimates for the still-to-come companies, total S&P 600 earnings are on track to be up +250.5% on +32.8% higher revenues.

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Image Source: Zacks Investment Research

The chart below shows the year-over-year earnings growth rates for the small-cap index on a trailing four quarter basis.

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Image Source: Zacks Investment Research

The chart below shows the small-index’s earnings picture on an annual basis.

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Image Source: Zacks Investment Research

A big part of this year’s growth is a result of easy comparisons to last year’s Covid impacted results. But as you can see in the chart below, 2021 earnings are on track to be up +29% from the pre-Covid 2019 level.

Zacks Investment Research
Image Source: Zacks Investment Research

For more details about the Q2 earnings season and the evolving picture for 2021 Q3 and beyond, please check out our weekly Earnings Trends report >>>Strong Retail Sector Earnings


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