US earnings powered ahead because the economy emerges from the ashes of the COVID-19 pandemic. Consensus is expecting US earnings growth of 48.1% this year, driven by 9.6% top-line growth and 4.3 % EBITDA margin expansion. Dylan Cheang, Strategist at DBS Bank, sees limited room for valuation multiple expansion this year and believes further upside for S&P 500 is about to be driven by earnings growth.
See – S&P 500 Index: Three reasons to expect small gains over subsequent few years – CE
Strong earnings beat; upward revisions on the cards
“The strong set of results warrants the case for upward earnings revisions in coming months. at the present , market consensus is expecting US earnings to grow 48.1% in 2021 – underpinned by: (a) Top-line revenue growth of 9.6% and (b) EBITDA margin expansion of 4.3% to 21.3%. Given the strong earnings hammer in 1Q21, we believe that further upgrades are on the cards.
“There is robust likelihood that analysts’ earnings forecast for 2021 is skewed to the conservative side – for 2 reasons: (a) The consensus price target for S&P 500 is 4,130 and this level has already been breached, (b) The ratio for consensus price target over actual market prices for S&P 500 is below the long-term average. as long as consensus forecasts are currently not within the ‘exuberance’ stage, the likelihood of further upgrades is high because the economic recovery gathers pace.”
“With the S&P 500 trading at 23x forward price-to-earnings (P/E), there’s limited room for further multiple expansion this year. Instead, further upside for US equities has got to be driven by earnings growth and therefore the strong 1Q21 numbers augur well for the outlook.”
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