FactSet Insight - Commentary and research from our desk to yours

Larger Cuts Than Average to EPS Estimates for S&P 500 Companies for Q1 To Date

Written by John Butters | Mar 3, 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 first quarter?

The answer is yes. During the months of January and February, analysts lowered EPS estimates for the first quarter by a larger 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 5.7% (to $51.13 from $54.20) 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 2.3%. 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 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 first quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average. The first quarter also marked the largest decrease in the bottom-up EPS estimate during the first two months of a quarter since Q2 2020 (-35.9%).

At the sector level, 10 of the 11 sectors witnessed a decrease in their bottom-up EPS estimate for Q1 2023 from December 31 to February 28, led by the Materials (-12.6%), Health Care (-8.6%), Consumer Discretionary (-8.5%), and Industrials (-8.2%) sectors. On the other hand, Utilities (+3.1%) was the only sector that recorded an increase in its bottom-up EPS estimate for Q1 2023 during this period.

While analysts were decreasing EPS estimates in aggregate for the first quarter, they were also decreasing EPS estimates in aggregate for all of 2023. The bottom-up EPS estimate for CY 2023 declined by 3.4% (to $222.80 from $230.57) from December 31 to February 28.

Over longer timeframes, analysts usually reduce annual earnings estimates modestly during the first two months of the year. During the past five years, the average increase in the annual bottom-up EPS estimate during the first two months of the year has been 1.6%. 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 0.5%. 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 1.4%.

Thus, the decline in the CY 2023 bottom-up EPS estimate recorded during the first two months of 2023 was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average for the first two months of a year. It also marked the largest decline in the annual bottom-up EPS estimate during the first two months of a year since 2016, when the bottom-up EPS estimate for CY 2016 decreased by 4.4% during the first two months of 2016.

At the sector level, 10 sectors witnessed a decrease in their bottom-up EPS estimate for CY 2023 from December 31 to February 28, led by the Consumer Discretionary (-6.3%), Materials (-5.7%), and Real Estate (-5.7%) sectors. On the other hand, the Consumer Staples (+0.2%) sector was the only sector that recorded an increase in its bottom-up EPS estimate for CY 2023 during this period.

It is interesting to note that the forward 12-month P/E ratio for the S&P 500 has increased to 17.5 from 16.7 since December 31, as the price of the index has increased while EPS estimates for CY 2023 have decreased during this time.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.