Analysts Making Smaller Cuts Than Average to EPS Estimates for S&P 500 Companies for Q2

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 second quarter?

The answer is no. During the month of April, analysts lowered EPS estimates for the second quarter by a smaller margin than average. 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 0.8% (to $53.89 from $54.32) from March 31 to April 27.

In a typical quarter, analysts usually reduce earnings estimates during the first month of a quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.9%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.8%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.2%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.7%.

Thus, the decline in the bottom-up EPS estimate recorded during the first month of the second 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, eight of the eleven sectors witnessed a decrease in their bottom-up EPS estimate for Q2 2023 from March 31 to April 27, led by the Energy (-5.2%) sector. On the other hand, three sectors recorded an increase in their bottom-up EPS estimate for Q2 2023 during this period, led by the Communication Services (+1.9%) sector.

It is interesting to note that while the bottom-up EPS estimate for CY 2023 declined by 0.2% during the month of April (to $220.86 from $221.25), it increased by 0.4% over the past week (to $220.86 from $220.04). Will the net upward revisions to EPS estimates for CY 2023 recorded over the past week continue in the second half of the Q1 earnings season?

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