Have Industry Analysts Overestimated S&P 500 EPS For 2023?

For 2023, the bottom-up EPS estimate for the S&P 500 (which reflects an aggregation of the median EPS estimates for CY 2023 for all of the companies in the index) is $232.53. If $232.53 is the final number for the year, it will mark the highest (annual) EPS number reported by the index since FactSet began tracking this metric in 1996. However, what is the likelihood that $232.53 will be the final EPS value for the S&P 500 in 2023?

In other words, how accurate is the bottom-up EPS estimate for the S&P 500 one year in advance?

Over the past 25 years (1997 – 2021), the average difference between the bottom-up EPS estimate at the beginning of the year (December 31) and the final EPS number for that same year has been 7.0%. In other words, industry analysts on average have overestimated the final EPS number by 7.0% one year in advance.

Analysts overestimated the final value (the final value finished below the estimate) in 17 of the 25 years and underestimated the final value (the final value finished above the estimate) in the other 8 years.

For the purposes of this analysis, the final EPS number for a year is the EPS number recorded two months after the end of each calendar year (February 28) to capture the actual annual EPS results reported by most companies during the fourth quarter earnings season.

However, this 7.0% average includes four years in which the difference between the bottom-up EPS estimate at the start of the year and the final EPS number for that same year exceeded 25%: 2001 (+36%), 2008 (+43%), 2009 (+28%), and 2020 (+27%). These large differences can be attributed to events that may have been difficult for analysts to predict at the start of the year. In 2001, the country endured the 9/11 attacks. In 2008 and 2009, the country was in the midst of economic recession. In 2020, economic lockdowns were implemented due to the COVID-19 pandemic. If these four years with unusual circumstances were excluded, the average difference between the bottom-up EPS estimate at the start of the year and the final EPS number for that year would be 2.0%.

If one applies the average overestimation of 7.0% to the current 2023 EPS estimate (assuming the estimate changes little between now and December 31), the final value for 2023 would be $216.16. Based on current estimates, this number would reflect the second-highest annual EPS number reported by the index since FactSet began tracking this metric in 1996, only trailing the current estimate of $221.19 for CY 2022. Thus, it would also reflect a year-over-year decline in earnings for CY 2023 relative to CY 2022.

If one applies the average overestimation of 2.0% (excluding the years 2001, 2008, 2009, and 2020) to the current 2023 EPS estimate (again assuming the estimate changes little between now and December 31), the final value for 2023 would be $227.88. Based on current estimates, this number would still reflect the highest annual EPS number reported by the index since FactSet began tracking this metric in 1996.

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