Q3 21 results were generally well above expectations, which was not taken for granted given the bottlenecks and higher input costs. However, the 2022 consensus remained very cautious, with EPS forecasts at best equivalent to nominal GDP growth! Good surprises cannot therefore be ruled out.
Since most companies have released their third quarter results by now, it is a good time to review the situation. With publications coming out well above expectations across all regions, things are looking good. After the economic halt suffered in 2020, the comparison bases were without doubt easy. But given the congestion of freight, the surge in commodity prices, wage pressures and bottlenecks in several sectors due to the shortage of semiconductors, the increases recorded were by no means in the bag. That said, the consensus forecasts for next year’s earnings remain very cautious, with EPS expected to reach +7.3% in the US and +6.5% in Europe, at best equivalent to nominal GDP growth! After a rapid catch-up in 2021, economic momentum will undoubtedly slow down, but real growth in developed countries is likely to remain well above potential in 2022. The usual relationship therefore between GDP growth and earnings would suggest EPS growth in the region of 16% in the US and 20% in Europe. Two very different visions but the real figures probably lie somewhere in between. As the pandemic seems like it could become endemic, the bottlenecks are easing only very slowly, and inflationary pressure looks relatively entrenched, growth of around 10% in both the US and Europe seems more realistic in our view. In all cases, in an environment in which inflation is set to be more prevalent, depending on the sector or company, the key to differentiating will more than ever be pricing power.
The consensus 2022 looks shy
Both in the US or Europe…
… a 10% 2022 EPS increase looks doable
After a lacklustre year for GEM in 2021…
…will China recover in 2022?