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Market Realized Earnings & Forecasts

The S&P 500 recently crossed into new all time highs as the market shrugs off the coronavirus threat. Applied Finance’s database processes forecast data for over 20,000 companies worldwide. We decided to take a look at the expectations built into the current market, as well as realized earnings for some of the recent quarters. In the S&P 500, Zacks estimates put median EPS growth around -4% for 2020, and then recovering sharply in 2021.

Applied Finance Database, 2019 actual growth 2020 & 2021 projections (Zacks estimates), S&P 500.

Applied Finance’s proprietary Economic Margin figure measures the profitability above or below a firm’s cost of capital. Forecasts for this factor show median profitability falling from 3.4% in 2019 to a projected 1.2% in 2020, and then rising to a forecasted 2.4% in 2021.

Applied Finance Database, EM – Invested Capital.

Pulling data from the previous 12 quarters, we can see that aggregate earnings in the S&P 500 show significant declines in 2020 through the first two quarters.

Applied Finance Database, Total Net Income by quarter.

By using current shares outstanding and Zacks forecasts for EPS, we can estimate the aggregate earnings for the current and following year. Total Net Income is projected to fall in 2020, before climbing to new highs in 2021.

Applied Finance Database, Total (2019) and Projected (2020 & 2021) Net Income, Zacks forecasts and current shares outstanding.

Using 10-Q data from the first two quarters, realized aggregate Net Income has been significantly lower in the first half of 2020 compared to 2019.

Applied Finance Database, Total Net Income by quarter.

Comparing 2020 earnings in the first two quarters to the same time periods last year shows sharp declines. Although much of the nation has reopened from full lockdowns, it is unlikely that earnings in 2020 will reconcile with current analyst forecasts by year end. There are two potential drivers to this phenomenon. First, non-GAAP estimates have likely become more popular in the coronavirus era, with companies reporting certain line items and/or one-time charges in unusual ways. Second, it is possible that analysts have become increasingly hesitant to update guidance for stocks heavily affected by the coronavirus. Industries hit hardest by the virus such as restaurants, hotels, and cruise lines face high amounts of uncertainty, and analysts may be unable and/or unwilling to provide ongoing revisions for EPS forecasts in 2020. Applied Finance believes that cash flow and capital levels are significantly more important than headline earnings, but wanted to share an update on financial reports from the first half of the year.


  • John Holt, CFA joined Applied Finance in 2014 and is involved in the management of both quantitative strategies and analyst driven strategies.


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