Since December 31, the CY 2018 bottom-up EPS estimate for the S&P 500 (which is an aggregation of the median 2018 EPS estimates for all of the companies in the index and can be used as a proxy for earnings) has increased by 7.0% (to $157.57 from $147.22). This change represents the largest increase in the annual EPS estimate over this period since FactSet began tracking this data in 1996, as analysts have increased EPS estimates for 2018 in large part to reflect the reduction in the corporate tax rate due to the recently passed tax legislation.
During each earnings season, many companies issue earnings guidance for future periods. The term “guidance” (or “preannouncement”) is defined as a projection or estimate for EPS provided by a company in advance of the company reporting actual results. Guidance is classified as negative if the estimate (or mid-point of a range estimates) provided by a company is lower than the mean EPS estimate the day before the guidance was issued. Guidance is classified as positive if the estimate (or mid-point of a range of estimates) provided by the company is higher than the mean EPS estimate the day before the guidance was issued.
Over the past several weeks, have S&P 500 companies been as optimistic as the industry analysts in terms of their annual EPS guidance for 2018?
The answer is yes. From December 31, 2017 through February 15, 127 S&P 500 companies have issued positive EPS guidance for 2018. This number is more than double the 10-year average of 49 for this same period.
In fact, this number marked the highest number of S&P 500 companies issuing positive EPS guidance for a year (through this point in time) since FactSet began tracking guidance data in 2007.
Sector Level Breakdown
At the sector level, six sectors (Health Care, Industrials, Information Technology, and Consumer Staples sectors) are reporting a record-high number of companies issuing positive EPS guidance for 2018 for this period.
What is driving the increase in the positive EPS guidance for 2018? The decrease in the corporate tax rate for 2018 due to the new tax law is clearly a significant factor. Other factors contributing to the increase in positive EPS guidance likely include an improving global economy and a weaker U.S. dollar.
John’s 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, Financial Times, The New York Times, MarketWatch, and Yahoo! Finance.