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Εβδομαδιαία Επισκόπηση: Διεθνής Οικονομία & Αγορές, 20/04/21

20/4/2021 - Μελέτες & Αναλύσεις

Διεθνής Οικονομία και Αγορές

​The US corporate earnings season kicks-off on a strong footing, with estimates for S&P500 2021 EPS growth, at +28% 
             
Key Takeaways
 
The US economic outlook continues to improve, following significantly better-than-expected retail sales data for March.

The Atlanta Fed’s GDPNow model points to growth of +8% qoq saar (+0.8% yoy) for Q1:2021, compared with +6% qoq saar (+0.3% yoy) one week before and from an outcome of +4.3% qoq saar (-2.4% yoy) in Q4:2020. The upward revision for real personal consumption growth (10.5% qoq saar vs 7.2% qoq saar), contributed to the upside. The official advance estimate from the Bureau of Economic Analysis, is due on April 29th.

Reflecting the improving activity, US Q1:2021 earnings season has begun on a strong footing. Specifically, the mean positive surprise per company, hovers at 30% (a record-high level in aggregate) vs a 5-year average of 7%.

S&P500 Financials have led EPS surprises, due to better top line growth, as well as due to lower provisioning. Indeed, Financials’ EPS growth for the quarter, has surged to +119% yoy.

Regarding the other sectors, Consumer Discretionary’s expected EPS growth of +109% for Q1:2021, is the second highest between all sectors, with Automobiles having the largest growth rate by far (+1316% yoy) within the sector. Materials follow, with an earnings growth of 47% yoy. Within the sector, the Metals & Mining industry, is expected to overperform (+476% yoy). On the contrary, two sectors are expected to report a decline of earnings (Industrials: -20% yoy and Energy: -14% yoy).

Overall, consensus analyst expectations for S&P500 EPS growth in Q1:2021, stand at +30% yoy, compared with +24% yoy on March 31st. Looking forward, analysts also predict a double-digit annual growth of earnings in the following quarters of 2021 (Q2: +55% yoy, Q3: +20% yoy, Q4: +16% yoy).

These high growth rates are due, inter alia, to the comparison with weaker earnings in 2020, following the negative impact of COVID-19 on many industries. Overall, 2021 S&P500 EPS growth, is expected at +28% yoy, from -11% yoy in 2020.

There are two downside risks for corporate profitability. First, the President Biden’s proposal for an increase in the corporate tax rate from 21% to 28% to partially fund the “American Jobs Plan”. This would reverse half of the 14 pps decline from 35% to 21% by the Tax Cuts and Jobs Act of 2017. Nevertheless, the exemptions and deductions embedded in the US tax code, could reduce the possible impact of higher statutory tax rates.

Second, the supply disruptions combined with the increase in input costs, may decrease profit margins. Note that prices of processed goods for intermediate demand, rose by 4% in March (the largest increase since 1974), while for a 12-month period, prices rose by 12.5% (the largest increase since 2008). This could have a remarkable effect on companies which may not be able to adjust their end-customer prices higher.