The period that many have dubbed the Great Recession certainly wasn't an easy one for corporate America to survive. For all the economic devastation the financial crisis wrought on big business, the big slowdown did do the companies that did survive one huge favor: It temporarily depressed earnings to ridiculously low levels.

The ugly numbers many companies posted during the recession made their ensuing recovery look massive by comparison. Now, though, those easy comps are coming to an end, and after having seen some huge gains in share prices, companies will face a much tougher time proving that they can sustain growth at a reasonable pace.

Hitting the plateau
With earnings season roughly half over, indications are that the fourth quarter of 2010 was another strong period, extending the gains from previous quarters. Standard & Poor's now projects that fourth-quarter earnings will rise 32% from the same period a year ago, which is much faster growth than S&P initially expected before the reporting season began.

The favorable quarterly results cap another extraordinary year. S&P estimates full-year earnings growth of 51% for 2010, the third-largest percentage jump on record, trailing only 2009's 243% rise and a 77% increase in 2003, following the 2000-2002 bear market.

For the most part, the gains are spread across the economy. Financial stocks continue to post gains as they recover from massive loan losses and writedowns. Natural resources companies have benefited from higher prices for many mining and energy products. Huge interest in mobile devices such as smartphones and tablets has helped boost technology stocks. Utilities and health-care companies have dragged down the overall figures, but overall, it's hard to argue that the year hasn't been a great one.

No encore?
The problem, of course, is that big gains aren't easy to sustain. Even though analyst UBS raised its earnings estimates last month for S&P 500 companies as a whole, its 2011 estimate of $96 per S&P index share represents just 12% growth from its $86 estimate for 2010. The growth rate in 2012 will fall again, with $104 per share marking just an 8% improvement.

The concerns look even more troubling at the individual stock level. Consider these companies from the sectors with big earnings growth. Each of them has seen massive growth in earnings in the past year:


Net Income Growth, Past 12 Months

Estimated 1-Year Future EPS Growth

1-Year Return for Stock

Altera (Nasdaq: ALTR) 211.8% (1.3%) 81.8%
SanDisk (Nasdaq: SNDK) 213.1% (8.6%) 77.0%
Freeport-McMoRan Copper & Gold (NYSE: FCX) 57.7% (39.5%) 63.0%
Texas Instruments (NYSE: TXN) 119.6% 2.5% 54.5%
Capital One (NYSE: COF) 210.4% (22.2%) 36.2%
Chevron (NYSE: CVX) 81.5% 8.6% 35.7%

Source: Capital IQ, a division of Standard and Poor's.

You can see that in response to the big growth in net income over the past year, shares of all these stocks have risen sharply. With such easy comparisons, companies can make impressive showings of their financial resiliency and renewed growth.

The question, though, is whether investors have allowed their enthusiasm to get ahead of the fundamentals. As growth necessarily moderates, companies can no longer expect easy year-over-year results do the heavy lifting for them. Rather, with many of these companies actually expecting falling earnings in the coming year, their main challenge may well become how to limit the damage. At best, beating these estimates could help sustain share prices at the high level they've risen to since the market's 2009 lows.

Not every company has seen their shares rise despite improving earnings. Kroger shares are up less than 3% in the past year despite having net income rise by more than 566%. Medtronic (NYSE: MDT) has seen shares fall even with strong earnings growth, mostly because the slow economy has led patients to defer unnecessary procedures. These stocks may be value plays, but they may also merely reflect a more realistic assessment about what's likely to come in the near future.

Keep it real
Easy comparisons make earnings reports fun to read. But now that the recovery has taken hold, you can't count on triple-digit percentage gains in earnings anymore. As a result, you're going to have to look a lot harder at company financials to make sure the growth story you're counting on is still intact.

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As a Houston sports fan, Fool contributor Dan Caplinger is used to seeing teams fail at crunch time. He doesn't own shares of the companies mentioned in this article. Chevron is a Motley Fool Income Investor recommendation. The Fool owns shares of Medtronic and Texas Instruments. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy won't choke in the clutch.