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

Written by John Butters | Jun 2, 2023

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 months of April and May, 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 2.0% (to $53.28 from $54.38) from March 31 to May 31.

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 2.9%. 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 2.8%. 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 3.4%. 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 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, nine of the eleven sectors witnessed a decrease in their bottom-up EPS estimate for Q2 2023 from March 31 to May 31, led by the Energy (-12.1%) and Materials (-7.9%) sectors. On the other hand, two sectors recorded an increase in their bottom-up EPS estimate for Q2 2023 during this period: Communication Services (+1.7%) and Information Technology (+1.3%).

While analysts were lowering EPS estimates in aggregate for the second quarter, they were also decreasing EPS estimates in aggregate for the next two quarters. The bottom-up EPS estimate for the third quarter declined by 0.9% (to $56.37 from $56.87) from March 31 to May 31, while the bottom-up EPS estimate for the fourth quarter declined by 0.6% (to $58.10 from $58.43) during this same period.

Although analysts lowered EPS estimates in aggregate for the second, third, and fourth quarters during the first two months of the second quarter, they slightly increased EPS estimates in aggregate for all of 2023 during this time. The bottom-up EPS estimate for CY 2023 rose by 0.2% (to $222.05 from $221.51) from March 31 to May 31.

Thus, it appears the declines in the bottom-up EPS estimates for the second, third, and fourth quarters were offset by the larger increase in the bottom-up EPS estimate for the first quarter (+4.9%) due to companies reporting positive earnings surprises, resulting in a small increase in the overall EPS estimate for CY 2023.

At the sector level, seven sectors witnessed an increase in their bottom-up EPS estimate for CY 2023 from March 31 to May 28, led by the Communication Services (+3.1%), Consumer Discretionary (+2.5%), and Information Technology (+2.0%) sectors. On the other hand, four sectors recorded a decrease in their bottom-up EPS estimate for CY 2023 during this period, led by the Energy (-5.2%) and Materials (-1.8%) sectors.

Analysts also did not make substantial downward revisions to EPS estimates for CY 2024 during this period, as the bottom-up EPS estimate for CY 2024 decreased by just 0.3% (to $247.59 from $248.24) from March 31 to May 31.

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