Credit Suisse Raises S&P 500 Price Target to 4,600 on Stronger Earnings

A majority of companies have so far outperformed analysts' views for the prior quarter results to push the benchmark index S&P 500 to new record highs.

As a result, Credit Suisse analyst Jonathan Golub moved his price target on SPX to 4,600 from 4,300 to reflect higher EPS estimates for 2021 and 2022.

The analyst raised EPS 2021 projection to $200 from the prior $185, and EPS 2022 to $215 from previously 210, including a tax haircut (21% to 25%, a 4-5% hit to earnings).

“Consensus GDP forecasts call for 6.3% real (8.6% nominal) growth in 2021, the fastest pace in nearly 4 decades. Every 1% improvement in nominal GDP translates to a 21⁄2-3% gain in S&P 500 revenues, and additional improvement in margins, as fixed expenses are amortized over greater sales volumes. While companies might bemoan higher input costs, history shows that rising commodity prices lead to margin upside as companies pass on additional costs,” the strategist says in a note.

A new price target for SPX represents a 9.2% upside from current levels, and 22.5% for the year.

“In the early stages of an economic cycle, analysts tend to underestimate operating leverage, leading to positive revisions, a trend that can last 2-3 years. For example, on March 31, 1Q21 EPS was forecasted to grow 20%. With 71% of results in, it appears that EPS will finish closer to 44%. Between 2Q20-1Q21, results have topped estimates by 15-23%.”

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