During the third quarter, analysts increased earnings estimates for companies in the S&P 500 for the 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 4.1% (to $33.08 from $31.78) from June 30 to September 30. How significant is a 4.1% increase in the bottom up EPS estimate during a quarter? How does this increase compare to recent quarters?
During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.0%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.4%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 5.2%. Thus, while analysts typically lower EPS estimates during a quarter, they increased EPS estimates during Q3 2020.
In fact, this marked the first increase in the bottom-up EPS estimate during a quarter since Q2 2018 (+0.7%) and Q1 2018 (+5.4%). Prior to Q1 2018, the last time the bottom-up EPS estimate increased during a quarter was Q4 2010 (+0.6%). 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 quarter, led by the Consumer Discretionary (to $7.17 from $5.41), Energy (to -$0.70 from -$0.86), Financials (to $6.98 from $6.29), and Materials (to $3.82 from $3.48) sectors. Four sectors recorded a decline in their bottom-up estimate for Q3 during the quarter, led by the Industrials (to $3.76 from $3.98) and Utilities (to $5.00 from $5.20) sectors. One sector (Real Estate) recorded no change in its bottom-up estimate for Q3 during the quarter.
As the bottom-up EPS estimate for the index increased during the quarter, the value of the S&P 500 also increased during this same period. From June 30 through September 30, the value of the index increased by 8.5% (to 3363.00 from 3100.29). The third quarter marked 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 quarter.
Now you can listen to Earnings Insight on the go! In our new weekly Earnings Insight podcast, John Butters provides an update on S&P 500 corporate earnings and related topics based on his popular Earnings Insight publication. The podcast is made available every Monday—listen on Apple podcasts, Spotify, or factset.com.