Analysts Lower EPS Estimates for Q122 But Raise EPS Estimates for CY22

During the first quarter, analysts decreased earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q1 for all the companies in the index) decreased by 0.7% (to $51.83 from $52.21) during this period. How significant is a 0.7% decrease in the bottom-up EPS estimate during a quarter? How does this decrease compare to recent quarters?

Smaller-Than-Average Decrease in the Bottom-Up Q1 EPS Estimate

In a typical quarter, analysts usually reduce earnings estimates during the quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 2.5%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.4%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.8%.

Therefore, the decline in the bottom-up EPS estimate recorded during the first quarter was smaller than the five-year average, the 10-year average, and the 15-year average. However, it also marked the first decrease in the bottom-up EPS estimate during a quarter since Q2 2020 (-37.0%), when there were widespread lockdowns in the U.S. due to COVID-19.

At the sector level, eight of the 11 sectors witnessed a decrease in their bottom-up EPS estimate for Q1 2022 from December 31 to March 31, led by the Industrials (-11.4%) and Consumer Discretionary (-10.8%) sectors. On the other hand, three sectors recorded an increase in their bottom-up EPS estimate for Q1 2022 during this period, led by the Energy (+32.4%) sector.

Analysts Are Increasing Their Estimates for the Rest of CY22

While analysts were decreasing EPS estimates in aggregate for the first quarter, they were also increasing EPS estimates in aggregate for the next three quarters. The bottom-up EPS estimate for the second quarter increased by 1.6% (to $56.07 from $55.16) from December 31 to March 31. The bottom-up EPS estimate for the third quarter increased by 2.4% (to $59.23 from $57.82) during this same period. The bottom-up EPS estimate for the fourth quarter increased by 3.9% (to $60.59 from $58.31) during this same period.

Given the increases in bottom-up EPS estimates for the three of the four quarters, analysts also increased EPS estimates for all of 2022. The CY 2022 bottom-up EPS estimate increased by 2.0% (to $227.80 from $223.43) from December 31 to March 31.

During the first three months of the year, analysts usually reduce earnings estimates for the full year. During the past five years, the average decline in the annual bottom-up EPS estimate during the first quarter has been 0.4%. During the past 10 years, the average decline in the annual bottom-up EPS estimate during the first quarter has been 1.7%. During the past 15 years, the average decline in the annual bottom-up EPS estimate during the first quarter has been 2.9%. During the past 20 years, the average decline in the annual bottom-up EPS estimate during the first quarter has been 2.2%.

At the sector level, six sectors witnessed a decrease in their bottom-up EPS estimate for CY 2022 from December 31 to March 31, led by the Communication Services (-3.0%) and Industrials (-3.0%) sectors. On the other hand, five sectors witnessed an increase in their bottom-up EPS estimates for CY 2022 during this time, led by the Energy sector (+35.9%).

For nine of the 11 sectors, the bottom-up EPS estimate for CY 2022 recorded either a smaller decline or a larger increase compared to the bottom-up EPS estimate for Q1 2022 from December 31 to March 31.

Outlook for CY2023

In addition, analysts have increased earnings estimates for CY 2023, as the bottom-up EPS estimate for CY 2023 increased by 1.9% (to $249.79 from $245.05) from December 31 to March 31.

It is interesting to note that as the bottom-up EPS estimate for Q1 2022 decreased and the bottom-up EPS estimates for CY 2022 and CY 2023 increased during the first quarter, the value of the S&P 500 decreased during this same period. From December 31 through March 31, the value of the index decreased by 4.9% (to 4530.41 from 4766.18). With prices falling and earnings estimates rising, the forward 12-month P/E ratio for the S&P 500 declined to 19.5 from 21.3 during this period.

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