Analysts Making Larger Cuts Than Average to EPS Estimates for S&P 500 Companies for Q1

Given concerns in the market about a possible economic slowdown or recession, have analysts lowered EPS estimates more than normal for S&P 500 companies for the first quarter?

The answer is yes. During the month of January, analysts lowered EPS estimates for the first quarter by a larger margin than average. 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 3.3% (to $52.41 from $54.20) from December 31 to January 31.

In a typical quarter, analysts usually reduce earnings estimates during the first month of a quarter. The average decline in the bottom-up EPS estimate during the first month of a quarter has been:

• 1.5% during the past five years (20 quarters)

• 1.8% during the past 10 years (40 quarters) 

• 2.2% during the past 15 years (60 quarters) 

• 1.7% during the past 20 years (80 quarters) 

Thus, the decline in the bottom-up EPS estimate recorded during the first month of the first quarter was larger than the 5-, 10-, 15-, and 20-year averages.

At the sector level, ten of the 11 sectors witnessed a decrease in their bottom-up EPS estimate for Q1 2023 from December 31 to January 31, led by the Industrials (-6.9%) and Energy (-6.7%) sectors. On the other hand, the Utilities (+2.3%) sector was the only sector that recorded an increase in its bottom-up EPS estimate for Q1 2023 during this period.

While analysts were decreasing EPS estimates in aggregate for the first quarter, they were also decreasing EPS estimates in aggregate for all of 2023. The bottom-up EPS estimate for CY 2023 declined by 2.5% (to $224.88 from $230.57) from December 31 to January 31.

Over longer timeframes, analysts usually reduce earnings estimates modestly for the year during the month of January. The average increase in the bottom-up EPS estimate for the year during the month of January has been:

• 1.2% during the past five years 

•  0.3% during the past 10 years

• 1.2% during the past 15 years

• 1.0% during the past 20 years

Thus, the decline in the CY 2023 bottom-up EPS estimate recorded during the month of January was larger than the 5-, 10-, 15-, and 20-year averages for the month. It also marked the largest decline in the bottom-up EPS estimate for the year during the month of January since 2016, when the bottom-up EPS estimate for CY 2016 decreased by 3.0% during the month.

At the sector level, nine sectors witnessed a decrease in their bottom-up EPS estimates for CY 2023 from December 31 to January 31, led by the Energy (-3.6%) and Health Care (-3.5%) sectors. On the other hand, two sectors witnessed an increase in their bottom-up EPS estimates for CY 2023 during this time: Consumer Staples (+0.2%) and Utilities (+0.1%).

It is interesting to note that the forward 12-month P/E ratio for the S&P 500 has increased to 18.4 from 16.7 since December 31, as the price of the index has increased while EPS estimates for CY 2023 have decreased during this time.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.