Q3 Earnings Season Preview: What To Watch For

By: Wayne Duggan

Third-quarter earnings season ramps up with reports from big bank stocks such as JPMorgan Chase (NYSE: JPM), Bank of America (NYSE: BAC) and Citigroup (NYSE: C) starting on October 13. Analysts are calling for another strong quarter of earning growth as the U.S. economy recovers from the pandemic. Here’s a rundown of what analysts are expecting at this point.

The Numbers
S&P 500 companies are expected to report 27.6% earnings growth and 14.9% revenue growth for the third quarter. That projected earnings growth rate is well above the S&P 500’s 5-year average of 11.8% growth, but it is a sharp decline from second-quarter earnings growth of 90.9%.

The reason for the projected deceleration in earnings growth is that the U.S. economy started to open back up from shutdowns in the third quarter of 2020, making for relatively difficult year-over-year comparisons in the third quarter. However, if third-quarter earnings do hit analysts’ 27.6% projected growth rate, it would represent the index’s third highest earnings growth rate in any quarter since the third quarter of 2010.

Analyst earnings estimates for the S&P 500 have risen 2.9% since the beginning of the third quarter, but they have fallen for the past 4 consecutive weeks heading into the start of earnings season. Inflation, economic uncertainty in China and rising interest rates are 3 of analysts’ primary concerns at the moment.

Sectors To Watch
Thanks to inflation in materials and commodity prices, the materials sector is expected to report the highest earnings growth rate of any sector in the third quarter at 90.9%. The metals and mining sector’s earnings growth is expected to be particularly strong at 196%, so investors should look for big numbers from companies like Freeport-McMoRan (NYSE: FCX), Newmont (NYSE: NEM) and Nucor (NYSE: NUE).

The energy sector is also expected to be a top performer in the third quarter thanks to surging oil and natural gas prices. Analysts are expecting S&P 500 energy sector stocks to report $20.1 billion in net earnings in the third quarter compared to a $1.5 billion net loss a year ago. Investors will be watching for big numbers from oil majors like Exxon Mobil (NYSE: XOM), as well as exploration and production companies like ConocoPhillips (NYSE: COP) and EOG Resources (NYSE: EOG).

Looking Ahead
A big part of the third-quarter earnings season will be fourth-quarter and 2022 guidance. At this point, analysts project 21.5% earnings growth and 11.4% revenue growth in the fourth quarter. For the full calendar year of 2021, Wall Street analysts are forecasting S&P 500 earnings growth of 42.6% and revenue growth of 15%.

Looking ahead to 2022, analysts are expecting S&P 500 earnings growth of 9.6% and revenue growth of 6.7%.

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