Analysts Making Smaller 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 no. During the months of January and February, analysts lowered EPS estimates for the first quarter by a smaller 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 2.2% (to $55.11 from $56.34) from December 31 to February 28.

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 3.0%. During the past ten 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 fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.9%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 2.9%.

Thus, the decline in the bottom-up EPS estimate recorded during the first two months of the first quarter was smaller than the 5-year average, the 10-year average, the 15-year average, and the 20-year average.

At the sector level, seven of the eleven sectors witnessed a decrease in their bottom-up EPS estimate for Q1 2024 from December 31 to February 28, led by the Energy (-12.0%) and Materials (-11.8%) sectors. On the other hand, four sectors recorded an increase in their bottom-up EPS estimate for Q1 2024 during this period, led by the Consumer Discretionary (+2.3%) and Communication Services (+2.0%) sectors.

While the bottom-up EPS estimate for Q1 2024 declined by 2.2% during the months of January and February, analysts lowered EPS estimates for CY 2024 by 0.3% (to $243.82 from $244.46) during this same period.

Analysts also usually reduce earnings estimates for the year during the months of January and February. During the past five years, the average decline in the annual bottom-up EPS estimate during the first two months of the year has been 0.5%. During the past ten years, the average decline in the annual bottom-up EPS estimate during the first two months of the year has been 0.7%. During the past fifteen years, the average decline in the annual bottom-up EPS estimate during the first two months of the year has been 1.7%. During the past 20 years, the average decline in the annual bottom-up EPS estimate during the first two months of the year has been 1.5%. During the past 25 years, the average decline in the annual bottom-up EPS estimate during the first two months of the year has been 1.6%.

Thus, the decline in the CY 2024 bottom-up EPS estimate recorded during the first two months of 2024 was smaller than the 5-year average, the 10-year average, the 15-year average, the 20-year average, and the 25-year average for the first two months of a year.

At the sector level, six sectors witnessed a decrease in their bottom-up EPS estimate for CY 2024 from December 31 to February 28, led by the Energy (-8.3%) and Materials (-5.2%) sectors. On the other hand, five sectors recorded an increase in their bottom-up EPS estimate for CY 2024 during this period, led by the Consumer Discretionary (+2.2%) and Communication Services (+2.0%) sectors.

It is interesting to note that while the bottom-up EPS estimate for CY 2024 declined by 0.8% during the month of January (to $242.49 from $244.46), it increased by 0.5% during the month of February (to $243.82 from $242.49).

Due to an unexpected schedule issue on March 1, The FactSet Earnings Insight report was published one day early on February 29. The next edition of the report will be published on March 8.

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