By Philip Lawlor, head of Global Investment Research
Unwavering consensus expectations for a blowout EPS growth recovery this year have been a major force behind the recent equity bull run. As such, sentiment is likely to remain tightly tethered to the revision cycle in months ahead.
So where do EPS growth forecasts stand now?
The chart below highlights consensus 2021 EPS growth forecasts in order of magnitude. Despite the recent tempering of growth prospects for most developed markets, likely reflecting second-wave lockdown concerns, FTSE-All World EPS is still expected to advance at a mid-20% pace this year, following a savage profit slump in 2020.
Setting the pace is the nearly three-fold growth projected for the US small cap Russell 2000 (owing much to base effects). Next is the recently upgraded, nearly 60% growth forecast for Emerging Markets, which comes after a shallow decline in 2020.
Regional consensus EPS growth forecasts (%)
Source: FTSE Russell and Refinitiv. Data as of January 15, 2021. Past performance is no guarantee to future results. Please see the end for important disclosures.
Revision cycle in an upswing
FTSE All-World EPS estimate trails below illustrate both the brutal impact of the pandemic EPS forecasts in 2020 (which wiped out nearly all the gains since 2016) and the strong improvements in recent months, as analysts upgraded their numbers in response to the positive vaccine news flow and US ‘blue wave’ stimulus hopes since November.
FTSE All-World consensus EPS estimate trails (USD)
Source: FTSE Russell and Refinitiv. Data as of January 15, 2021. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
The forecast upcycle has been widespread across sectors. Unsurprisingly, the cyclically sensitive sectors suffering most through the pandemic are expected to enjoy the strongest rebounds as vaccination progress begins to unleash pent-up demand in 2021. Oil & gas, consumer services and basic materials top the list with enormous year-over-year gains, while EPS is expected to fall 1% for the more resilient telecom sector. Notably, the pace of technology EPS growth is expected to accelerate to the high-teens in 2021, while more than doubling for health care.
Upgrades for cyclical sectors soar
The revision cycle for key industries shows similar patterns. As illustrated below, analysts’ upgrades have overwhelmed downgrades for banks and oil & gas companies in recent months, while ahead more modestly for tech companies. By contrast, health care has seen more downgrades.
Select FTSE World sector analysts EPS upgrades/downgrades
Source: FTSE Russell and Refinitiv. Data as of January 15, 2021. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
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