Analysts Lowered EPS Estimates for Q222 But Raised EPS Estimates for CY22 During Q2

Given concerns in the market about a possible recession, did analysts lower EPS estimates for S&P 500 companies more than normal for the second quarter and for the full year during the second quarter?

Smaller-Than-Average Reductions in Q2 EPS Estimates

The answer is no. Over the past three months, analysts lowered EPS estimates for the second quarter by a smaller margin than average and increased EPS estimates for the full year.

During the second quarter, analysts decreased earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q2 for all the companies in the index) decreased by 1.1% (to $55.44 from $56.06) from March 31 to June 30.

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 2.4%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.3%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.7%.

Thus, the decline in the bottom-up EPS estimate for Q2 recorded during the second quarter was smaller than the five-year average, the 10-year average, and the 15-year average. However, it should be noted that the second quarter also marked the largest 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, seven of the 11 sectors witnessed a decrease in their bottom-up EPS estimate for Q2 2022 from March 31 to June 30, led by the Consumer Discretionary (-19.3%) and Communication Services (-8.1%) sectors. On the other hand, four sectors recorded an increase in their bottom-up EPS estimate for Q2 2022 during this period, led by the Energy (+38.6%) and Materials (+8.6%) sectors.

Analysts Increase EPS Estimates for CY 2022

While analysts were decreasing EPS estimates in aggregate for the second quarter, they were also slightly increasing EPS estimates in aggregate for the second half of 2022. The bottom-up EPS estimate for the third quarter increased by 0.4% (to $59.49 from $59.26) from March 31 to June 30, while the bottom-up EPS estimate for the fourth quarter did not change ($60.64) during this period.

Given the small increase in bottom-up EPS estimate for third quarter and the larger increase in the bottom-up EPS estimate for the first quarter (+4.5%) due to companies reporting positive earnings surprises, analysts also increased EPS estimates for all of 2022 during this period. The CY 2022 bottom-up EPS estimate increased by 0.8% (to $229.63 from $227.83) from March 31 to June 30.

At the sector level, five sectors witnessed a decrease in their bottom-up EPS estimate for CY 2022 from March 31 to June 30, led by the Consumer Discretionary (-13.5%) sector. On the other hand, six sectors witnessed an increase in their bottom-up EPS estimate for CY 2022 during this time, led by the Energy (+32.1%) and Materials (+9.1%) sectors.

In addition, analysts increased earnings estimates slightly for CY 2023 during this time, as the bottom-up EPS estimate for CY 2023 rose by 0.2% (to $250.48 from $250.03) from March 31 to June 30.

Although the bottom-up EPS estimates for CY 2022 and CY 2023 are higher today compared to March 31, both estimates are lower today compared to the middle of June. Since June 14, the bottom-up EPS estimate for CY 2022 has declined by 0.4% (to $229.63 from $230.51), while the bottom-up EPS estimates for CY 2023 has declined by 0.5% (to $250.48 from $251.78) during this period. The market will certainly be watching EPS estimate revisions over the next few weeks to see if mid-June marks an inflection point in the direction of the bottom-up EPS estimates for CY 2022 and CY 2023.

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