Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
- Total Q3 earnings for the 399 S&P 500 members that have reported results through Wednesday, November 6th, are up +6.9% on +5.2% higher revenues, with 73.9% beating EPS estimates and 61.4% beating revenue estimates.
- Earnings growth is expected to accelerate after the modest growth pace in Q3, with double-digit earnings growth projected in three of the next four quarters.
- For 2024 Q4, total S&P 500 earnings are currently expected to be up +8.1% from the same period last year on +4.9% higher revenues. Had it not been for the Energy sector drag, Q4 earnings for the rest of the index would be up +10.0%.
- Earnings estimates for 2024 Q4 have come down since the quarter got underway, with the +8.1% growth today down from +9.8% at the start of October. This magnitude of decline to estimates compares favorably to what we had seen in the comparable period of 2024 Q3 and other recent periods.
Magnificent 7 Generates Sustainable Earnings Growth
Nvidia NVDA is the only member of the Magnificent 7 group that has yet to report Q3 results, with the semiconductor leader emerging as a pure play on the artificial intelligence (AI) revolution. Nvidia is expected to report results on November 20th, with the company expected to bring in +81.9% more earnings in Q3 compared to the same period last year on +81.1% higher revenues.
Nvidia shares have been stellar performers this year, up over +190% in the year-to-date period and handily outperforming not only its peers in the Mag 7 group but also the broader market and the Tech sector. You can see this in the year-to-date chart below.
Image Source: Zacks Investment Research
The market’s current issues with some of the Mag 7 stocks notwithstanding, there is no escaping the fact that these mega-cap operators are enjoying sustainable profitability growth.
These seven companies collectively are on track to bring in $126.2 billion in earnings in Q3 on $492.5 billion in revenues. This represents year-over-year earnings growth of +30.5% on +14.9% higher revenues.
Image Source: Zacks Investment Research
The Mag 7 companies are on track to account for 23.1% of all S&P 500 earnings in Q3. In fact, had it not been for the Mag 7’s substantial earnings contribution, Q3 earnings for the remaining S&P 500 index would be up only +1.1%.
The Earnings Big Picture
Looking at Q3 as a whole, combining the actual results that have come out with estimates for the still-to-come companies, total earnings for the S&P 500 index are now expected to be up +6.7% from the same period last year on +5.4% higher revenues.
The Q3 earnings growth pace would improve to +9.1% had it not been for the Energy sector drag (decline of -24.2% for Energy). On the other hand, quarterly earnings for the index would be up +1.8% once the Tech sector’s hefty contribution is excluded (earnings growth of +19.4% for the Tech sector).
The quarterly earnings growth pace is expected to improve from next quarter onwards. You can see this in the chart below, which shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
For the current period (2024 Q4), total S&P 500 earnings are expected to be up +8.1% on +4.9% higher revenues. Q4 earnings would be up +10.0% had it not been for the Energy sector drag.
Estimates for the period have started coming down since the quarter got underway. Still, the pace and magnitude of negative revisions are less than we had seen in the comparable period of Q3. You can see this in the chart below that shows how Q4 estimates have evolved in recent weeks.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on an annual basis.
Image Source: Zacks Investment Research
Please note that this year’s +7.9% earnings growth on only +1.9% top-line gains reflects revenue weakness in the Finance sector. Excluding the Finance sector, the earnings growth pace changes to +7.1%, and the revenue growth rate improves to +4.2%. In other words, about half of this year’s earnings growth comes from revenue growth, with margin gains accounting for the rest.
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