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Analysts Are Raising Quarterly S&P 500 EPS Estimates for the First Time Since Q1 2018

Earnings

By John Butters  |  August 3, 2020

During the month of July, analysts increased earnings estimates for companies in the S&P 500 for the third quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q3 for all the companies in the index) increased by 1.1% (to $32.13 from $31.78) during this period. How significant is a 1.1% increase in the bottom-up EPS estimate during the first month of a quarter? How does this increase compare to recent quarters?

Change in S&P 500 Quarterly EPS 1st Month of Qtr

During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.8%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.3%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.4%. Thus, while analysts typically lower EPS estimates during the first month of a quarter, they increased EPS estimates during the first month of Q3 2020.

In fact, this marked the first increase in the bottom-up EPS estimate over the first month of a quarter since Q1 2008 (+4.9%). Prior to Q1 2018, the last time the bottom-up EPS estimate increased over the first month of a quarter was Q2 2011 (+2.1%).

However, it should be noted that analysts made substantial cuts to EPS estimates for Q3 during the second quarter (March 31 to June 30). During this period, the Q3 bottom-up EPS estimate declined by 23.6% (to 31.78 from $41.60)

At the sector level, six sectors recorded an increase in their bottom-up EPS estimate for Q3 during the first month of the quarter, led by the Energy (to -$0.34 from -$0.86), Consumer Discretionary (to $5.75 from $5.41), and Financials (to $6.61 from $6.29) sectors. Five sectors recorded a decline in their bottom-up estimate for Q3 during the first month of the quarter, led by the Industrials (to $3.62 from $3.98) sector.

As the bottom-up EPS estimate for the index increased during the first month of the quarter, the value of the S&P 500 also increased during this same period. From June 30 through July 30, the value of the index increased by 4.7% (to 3246.22 from 3100.29). Assuming the value of the index does not fall below 3100.29 today, the third quarter will mark just the second time in the past 20 quarters in which both the bottom-up EPS estimate for the index and the value of the index increased during the first month of the quarter.

S&P 500 Change in Q320 EPS vs Change in Price

 

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John Butters

Vice President, Senior Earnings Analyst, Investor Relations

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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