Wall Street is looking for a record quarter for earnings growth for the first quarter of 2021 to keep the stock market trend pointing upward. The first earnings report for the quarter are due from the big banks on April 14 and 15.
On April 1 FactSet reported that the bottom-up analyst earnings projection for the stocks in the Standard & Poor’s 500 for the first quarter had climbed 6% as the quarter itself progressed. That’s the biggest increase in analyst projections since FactSet began tracking quarterly bottom-up earnings estimates in the second quarter of 2002. Normally, analyst estimates slip downwards as the quarter progresses with the average decrease of the last five years at 4.2%
What we’re looking at the the possibility of an almost unbelievable surge in earnings in the first quarter of 2021, the second quarter, and for the whole year–caused by year-to-year comparisons with the pandemic recession in these quarters of 2020.
Here’s the Wall Street analyst consensus for S&P 500 earnings as reported by Yardeni Research on March 29. For the first quarter Wall Street is expecting 20.0% earnings growth. Second quarter projections are looking for 49.7% year over year growth. In the third quarter earnings growth will be “just” 17.7% year over year and in the fourth quarter 12.8%. For 2021 as a whole, the analyst consensus is calling for earnings to grow by 25.4% from 2020 levels for the stocks in the S&P 500.
Yardeni Research’s now earnings growth estimates are even higher. Year to year earnings growth in the first quarter is projected at 29.8%. Second quarter–hold onto your hat–year over year earnings growth is expected to be 53.7%. Quarter three sees year over year earnings growth drop to “just” 18.9% year over year. Fourth quarter: 12.7%. The Yardeni Research projection for year over year S&P 500 earnings growth is 28.8%.
Now you and I and everyone on Wall Street know that these extraordinary rates of growth are in good part a result of comparing the “recovery” quarters of 2021 with the “recession” quarters of 2020.
But as I noted in my video last week–“3 Stock Picks for Earnings Season”–I don’t think that matters much. Investors and traders are going to want to be positioned out in front of these growth reports. In my video I picked Restaurant Brands (QSR), MGM Resorts (MGM) and Wyndham Hotel (WH) as companies likely to report big year over year improvements in earnings and to guide to an even bigger improvement in the second quarter. (I own MGM and Wyndham in my Jubak Picks Portfolio.)
If you wanted to leverage this earnings season by using Call Options, my pick would be Wyndham Hotels. The company reports on May 3. In the first quarter of 2020 Wyndham reported earnings of 5 cents a share Wall Street analysts are looking for 24 cents a share in the first quarter of 2021. I’ll be adding Call Options on Wyndham Hotels to my Volatility Portfolio on Monday and in my write up on that move I’ll give you the exact expiration and strike option that I’d use.
Full disclosure: I own Call Options on Wyndham Hotels and MGM Resorts in my personal portfolios