By Philip Lawlor, head of Global Markets Research
Investors have decisively turned their sights to 2021 recovery prospects, even as consensus 2020 EPS forecasts have continued their steep downhill slide. Signs that the negative revision cycle may be slowing offer a positive note.
As the table below shows, the swing in consensus 2020 EPS forecasts to negative growth has been most severe for the Russell 2000, FTSE Europe ex UK and FTSE UK, while emerging markets are seen posting much smaller gains than previously projected. At the same time, however, expectations for a robust global EPS recovery in 2021 have continued to rise. The anticipated turnaround for the Russell 2000 next year is particularly striking.
Regional consensus EPS growth forecasts (YoY % change)
Source: FTSE Russell / Refinitiv. Data as of June 15, 2020. Past performance is no guarantee to future results. Please see the end for important disclosures.
Given the enormous economic uncertainties, mounting operating-leverage pressures and patchy data, these forecasts warrant caution. Moreover, as the EPS estimate trails for the FTSE All-World below highlight, the continued negative revisions for 2020 to around $17 has erased nearly all of the gains since 2016, underscoring the base effects benefiting 2021 forecasts. And, as this chart also shows, analysts forecasts tend to overshoot in the initial stages. Even 2021 forecasts have been modestly trimmed.
FTSE All-World consensus EPS estimate trails (USD)
Source: FTSE Russell / Refinitiv. Data as of June 15, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Encouraging signs emerging
The chart below shows the current state of play for 12-month forward EPS revisions. Though downgrades still outnumber upgrades (as a reading below 50% indicates), the gap between the two has narrowed significantly since the extreme descent in March/April. This may be an early sign that the downgrade cycle is bottoming.
Analysts upgrades to 12-month-forward EPS forecasts as % of total estimates
Source: FTSE Russell / Refinitive. Data as of June 15, 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
We will be closely monitoring these metrics as post-Covid-lockdown economic developments continue to unfold and gain greater clarity about the path ahead.
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