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S&P 500 Earnings Season Update: Revenue growth seen across all 11 sectors

Ten sectors are reporting year-over-year earnings growth, led by the Energy, Industrials, Materials, and Consumer Discretionary sectors.

S&P 500, Earnings Growth, top US stocks, Energy, Industrials, Materials, Consumer Discretionary sector
Positive earnings surprises reported by companies in multiple sectors, led by the Health Care sector, were responsible for the improvement in overall earnings for the index.

Corporate earnings plays an important role in the valaution of stocks over the long term. Investors gloabally keep a close watch on the earnings calendar of companies and take investing decesions based on the outcome of results. S&P 500 representing the top US stocks is the one that most analysts track as far earnings of stocks comprising the index is concerned. S&P 500 is considered to be the top-most single indicator of large-cap US stocks and includes nearly 500 leading corporates across 11 sectors and covers about 80 per cent of the market capitalization of the US stock exchanges.

According to FactSet earnings season update released on February 11, the number of companies beating EPS estimates is above the five-year average, but the amount by which companies are beating estimates is equal to the five-year average. The index is reporting earnings growth of more than 30% for the fourth straight quarter and earnings growth of more than 45% for the full year.

Blended Earnings Growth for Q4 Now Above 30%

Overall, 72% of the companies in the S&P 500 have reported actual results for Q4 2021 to date. Of these companies, 77% have reported actual EPS above estimates, which is above the five-year average of 76%. In aggregate, companies are reporting earnings that are 8.6% above estimates, which is equal to the five-year average of 8.6%.

Positive earnings surprises reported by companies in multiple sectors, led by the Health Care sector, were responsible for the improvement in overall earnings for the index during the past week.

Positive earnings surprises reported by companies in the Consumer Discretionary, Information Technology, Financials, and Health Care sectors have been the top contributors to the overall increase in earnings for the index since the end of the fourth quarter.

If 30.3% is the actual growth rate for the quarter, it will mark the fourth straight quarter of earnings growth above 30% for the index. The last time the index reported four straight quarters of earnings growth above 30% was Q4 2009 through Q3 2010.

Ten sectors are reporting year-over-year earnings growth, led by the Energy, Industrials, Materials, and Consumer Discretionary sectors.

Revenue Growth Seen Across All 11 Sectors

In terms of revenues, 77% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 68%. If 77% is the final percentage for the quarter, it will tie the mark (with Q1 2021 and Q1 2018) for the fourth highest percentage of S&P 500 companies reporting a positive revenue surprise since FactSet began tracking this metric in 2008.

Positive revenue surprises reported by companies in multiple sectors were responsible for the increase in overall revenues for the index over the past week. Positive revenue surprises reported by companies in the Energy sector have been the largest contributor to the increase in the overall revenues for the index since the end of the fourth quarter.

Looking Ahead

For the full year, the blended earnings growth rate for CY 2021 is 47.4%. Looking ahead to the first half of CY 2022, analysts expect earnings growth of 5.5% for Q1 2022 and 4.8% for Q2 2022.

The forward 12-month P/E ratio is 19.8, which is above the five-year average (18.6) and above the 10-year average (16.7). However, It is below the forward P/E ratio of 21.3 recorded at the end of the fourth quarter (December 31), as prices have decreased while EPS estimates have increased since December 31.

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