For 2022, the bottom-up EPS estimate for the S&P 500 (which reflects an aggregation of the median EPS estimates for CY 2022 for all of the companies in the index) is $222.32. If $222.32 is the final number for the year, it will mark the highest (annual) EPS number for the index since FactSet began tracking this metric in 1996. However, what is the likelihood that $222.32 will be the final EPS value for the S&P 500 in 2022?
Over the past 25 years (1996 – 2020), 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 7.2%. In other words, industry analysts on average have overestimated the final EPS number by 7.2% one year in advance. Analysts overestimated the final value (the final value finished below the estimate) in 18 of the 25 years and underestimated the final value (the final value finished above the estimate) in the other seven 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 7.2% average includes three years in which there were substantial differences between the bottom-up EPS estimate at the start of the year and the final EPS number: 2001 (+36%), 2008 (+43%), and 2009 (+28%). 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. If these three years were excluded, the average difference between the bottom-up EPS estimate one year prior to the end of that year and the final EPS number for that year would be 3.3%.
If one applies the average overestimation of 7.2% to the current 2022 EPS estimate (assuming the estimate changes little between now and December 31), the final value for 2022 would be $206.32. If one applies the average overestimation of 3.3% (excluding the years 2001, 2008, and 2009) to the current 2022 EPS estimate, the final value for 2022 would be $215.00. Based on current estimates, EPS of either $206.32 or $215.00 would reflect a new record-high (annual) EPS number for the S&P 500.
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