As we noted last night, Wall Street estimates call
for a 12% drop in revenue and a 44% tumble in earnings for S&P 500 firms.
That’s bad enough, but the quarter is expected to have been even more brutal
for small-cap companies.
Analysts’
consensus estimate is for Russell 2000 companies’ earnings to plunge 89.1% on a
19.1% fall in sales, according to Jefferies equity strategist Steven
DeSanctis. That would “far and away
surpass even the ugliest reporting season during the global financial crisis,”
DeSanctis wrote in a recent report.
The second
quarter and all of its challenges fell particularly hard on smaller companies.
They don’t have the financial and operating scale that S&P 500 companies do
to retool and adjust operations for a pandemic as quickly. And profit
margins tend to be lower to begin with, making the second-quarter coronavirus
hit even more painful.
But DeSanctis
sees reasons to hope that things will only get better from there, and that the
full-year picture is much better than for the second quarter alone. For the
third quarter, analysts expect Russell 2000 revenue and earnings to be down 10%
and 50%, respectively. And the fourth-quarter forecasts look like those for an
average recession, not the unprecedented second-quarter dip. Wall Street
consensus is that sales will fall 5% year over year, and earnings will decline
25%.
DeSanctis also
noted that earnings estimate revision trends are improving.
“Analysts
slashed numbers dramatically [earlier this year] and with little new
information from companies, have stopped adjusting their annual forecasts,” he
wrote. “We think there are more cuts coming, but more in line with the
historical average of less than 2% per month. Thus, we look for small-cap
earnings to be down 60% for the year.”
DeSanctis is
referring to analysts’ tendency to lower their estimates as a quarter nears.
Their current forecast is for a 52.9% decline in Russell 2000 earnings in 2020,
and a 7.6% drop in revenue.
By next year, Wall Street
sees a major rebound in small-cap revenues and earnings—to the tune of 6.8% and
74.2% increases, respectively.
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