Goldman expects healthy earnings growth, 'moderate' beats

Investing.com -- The Q4 2024 reporting season is set to kick off next week, with analysts projecting 8% year-over-year (YoY) earnings per share (EPS) growth for the aggregate S&P 500 and 6% growth for the median constituent.

Goldman Sachs strategists expect companies to report robust growth for the quarter but caution that the magnitude of EPS beats could "moderate" due to elevated consensus expectations compared to recent quarters.

The 8% YoY growth in Q4 earnings is expected to be driven by 4% sales growth and a 31 basis point expansion in profit margins to 11.5%. For the median S&P 500 stock, EPS growth is projected at 6%.

Goldman Sachs notes that consensus expectations for this quarter are among the highest since Q4 2021, surpassed only by the 9% year-over-year EPS growth anticipated ahead of Q2 2024. Historically, realized S&P 500 EPS growth has exceeded consensus estimates by an average of 4 percentage points over the past 11 quarters.

"We expect that corporates will continue to report solid earnings growth this quarter but that the magnitude of beats will likely be smaller than in recent quarters given the higher bar,” strategists led by David J. Kostin said in a note.

Strategists highlight three key themes for this season, which they believe will serve as indicators of the 2025 earnings outlook. These include the outlook for corporate sales growth, preparations for a change in administration in Washington, D.C., and the sustainability of mega-cap tech’s superior earnings growth.

At the sector level, Communication Services and Information Technology are forecasted to deliver the strongest earnings growth, while Financials are expected to see a 13% increase in profits.

In contrast, the Energy sector is projected to face the most significant earnings decline, largely due to an 11% drop in average Brent oil prices compared to Q3 2023.

Goldman strategists said they will reevaluate their S&P 500 earnings forecast after this reporting season.

Their current projection for 2025 EPS growth stands at +11% ($268), aligning closely with the consensus among top-down strategists. "We currently view risks around our earnings forecast as balanced,” they said.

The team maintains an S&P 500 target of 6,500 by year-end 2025, implying a 12% increase, which it believes will primarily be driven by earnings growth. 

Source: Investing.com