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Larger Cuts Than Average to EPS Estimates for S&P 500 Companies for Q4 To Date

Earnings

By John Butters  |  December 2, 2022

Given continuing concerns in the market about a possible recession, are analysts lowering EPS estimates more than normal for S&P 500 companies for the fourth quarter?

The answer is yes. During the months of October and November, analysts lowered EPS estimates for S&P 500 companies for the fourth quarter by a larger margin than average. The Q4 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q4 for all the companies in the index) decreased by 5.6% (to $54.58 from $57.79) from September 30 to November 30.

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 2.1%. During the past 10 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 15 years, (60 quarters), the average decline in the bottom-up EPS estimate during the first two months of a quarter has been 3.5%. 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 fourth quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average. The fourth 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, nine of the 11 sectors witnessed a decrease in their bottom-up EPS estimate for Q4 2022 from September 30 to November 30, led by the Materials (-21.3%), Consumer Discretionary (-12.2%), and Communication Services (-11.4%) sectors. On the other hand, two sectors recorded an increase in their bottom-up EPS estimate for Q4 2022 during this period, led by the Energy (+6.2%) sector.

While analysts were decreasing EPS estimates in aggregate for the fourth quarter, they were also decreasing EPS estimates in aggregate for CY 2023. The bottom-up EPS estimate for CY 2023 declined by 3.6% (to $232.52 from $241.22) from September 30 to November 30.      

At the sector level, nine sectors witnessed a decrease in their bottom-up EPS estimate for CY 2023 from September 30 to November 30, led by the Communication Services (-9.4%), Materials (-8.1%), and Consumer Discretionary (-6.8%) sectors. On the other hand, two sectors witnessed an increase in their bottom-up EPS estimate for CY 2023 during this time, led by the Energy (+4.4%) sector.

It is interesting to note that the forward 12-month P/E ratio for the S&P 500 has increased to 17.6 from 15.2 since September 30, as the price of the index has increased while EPS estimates for CY 2022 and CY 2023 have decreased during this time.

 

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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.

 

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John Butters

Vice President, Senior Earnings Analyst

Mr. John Butters is Vice President and Senior Earnings Analyst at FactSet. His weekly research report, “Earnings Insight,” provides analysis and commentary on trends in corporate earnings data for the S&P 500 including revisions to estimates, year-over-year growth, performance relative to expectations, and valuations. He is a widely used source for the media and has appeared on CNBC, Fox Business News, and the Business News Network. In addition, he has been cited by numerous print and online publications such as The Wall Street Journal, The Financial Times, The New York Times, MarketWatch, and Yahoo! Finance. Mr. Butters has over 15 years of experience in the financial services industry. Prior to FactSet in January 2011, he worked for more than 10 years at Thomson Reuters (Thomson Financial), most recently as Director of U.S. Earnings Research (2007-2010).

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The information contained in this article is not 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.