Analysts Lowering EPS Estimates for Q2 2022 but Not Lowering EPS Estimates for 2H 2022

During the first two months of 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 1.3% (to $55.36 from $56.06) during this period. How significant is a 1.3% decrease in the bottom-up EPS estimate during the first two months of a quarter? How does this decrease compare to recent quarters?

Smaller-Than-Average Decline in the Bottom-Up EPS Estimate for Q2

In a typical quarter, analysts usually reduce earnings estimates during the first two months of a quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 1.9%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.7%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.4%.

Thus, the decline in the bottom-up EPS estimate recorded during the first two months of 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 the first two months of a quarter since Q2 2020 (-35.9%), 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 May 31, led by the Consumer Discretionary (-15.8%) and Communication Services (-7.3%) 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 (+29.4%) and Materials (+8.7%) sectors.

Increase in EPS Estimates for the Second Half of 2022 and 2023

While analysts were decreasing EPS estimates in aggregate for the second quarter, they were also increasing EPS estimates in aggregate for the next two quarters by small margins. The bottom-up EPS estimate for the third quarter increased by 0.4% (to $59.52 from $59.26) from March 31 to May 31, while the bottom-up EPS estimate for the fourth quarter increased by 0.2% (to $60.78 from $60.74) during this same period.  

Given the slight increases in bottom-up EPS estimates for third and fourth quarters 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 0.7% (to $229.49 from $227.83) from March 31 to May 31.

At the sector level, five sectors witnessed a decrease in their bottom-up EPS estimate for CY 2022 from March 31 to May 31, led by the Consumer Discretionary (-10.8%) sector. 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 (+24.4%) and Materials (+9.3%) sectors. One sector (Utilities) recorded no change in its bottom-up EPS estimate for CY 2022 during this period.

In addition, analysts have increased earnings estimates for CY 2023, as the bottom-up EPS estimate for CY 2023 increased by 0.6% (to $251.53 from $250.03) from March 31 to May 31.

Falling Prices, Rising Estimates

It is interesting to note that as the bottom-up EPS estimate for Q2 2022 decreased and the bottom-up EPS estimates for CY 2022 and CY 2023 increased during the first two months of the quarter, the value of the S&P 500 decreased during this same period. From March 31 through May 31, the value of the index decreased by 8.8% (to 4132.15 from 4530.41). With prices falling and earnings estimates rising, the forward 12-month P/E ratio for the S&P 500 declined to 17.4 from 19.4 during this period.

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