S&P 500 Companies Reporting Positive EPS Surprises For Q1 See Below Average Price Increases

To date, 92% of the companies in the S&P 500 have reported earnings for the first quarter. Of these companies, 78% have reported actual EPS above the mean EPS estimate, which is above the 10-year average of 73%. It is also the highest percentage of S&P 500 companies reporting a positive EPS surprise since Q3 2021 (82%). In aggregate, earnings have exceeded estimates by 6.5%, which is above the 10-year average of 6.4%. It is also the highest surprise percentage reported by S&P 500 companies since Q4 2021 (8.1%). Given this strong performance relative to recent quarters and the 10-yeave averages, how has the market responded to positive and negative EPS surprises reported by S&P 500 companies during the Q1 earnings season?

S&P 500 companies that have reported positive EPS surprises have seen a smaller price increase than average.

Companies that have reported positive earnings surprises for Q1 2023 have seen an average price increase of 0.3% two days before the earnings release through two days after the earnings release. This percentage increase is below the 5-year average price increase of 1.0% during this same window for companies reporting positive earnings surprises.

One example of a company that reported a positive EPS surprise in Q1 and saw a price decrease is Tesla. On April 19, the company reported actual (non-GAAP) EPS of $0.85 for Q1, which was above the mean (non-GAAP) EPS estimate of $0.84. From April 17 to April 21, the stock price for Tesla decreased by 11.7% (to $165.08 from $187.04).

Overall, 46% of the S&P 500 companies that have reported a positive EPS surprise for Q1 have seen a decrease in price two days before the earnings release through two days after the earnings release.

On the other hand, S&P 500 companies that have reported negative EPS surprises have seen a larger price decrease than average.

Companies that have reported negative earnings surprises for Q1 2023 have seen an average price decrease of 4.1% two days before the earnings release through two days after the earnings release. This percentage decline is larger than the 5-year average price decrease of 2.2% during this same window for companies reporting negative earnings surprises.

One example of a company that reported a negative EPS surprise for Q1 and witnessed a substantial decrease in price is Tyson Foods. On May 8, the company reported actual (non-GAAP) EPS of -$0.04 for Q1, which was below the mean (non-GAAP) EPS estimate of $0.79. From May 4 to May 10, the stock price for Tyson Foods decreased by 21.4% (to $47.28 from $60.13).

Why is the market rewarding positive earnings surprises less than average and punishing negative EPS surprises more than average?

It is likely not related to the earnings outlooks for Q2 2023 provided by companies and analysts during the Q1 earnings season, which overall have been less negative compared to recent averages. In terms of earnings guidance, 57% of the S&P 500 companies (50 out of 87) that have issued EPS guidance for Q2 2023 have issued negative guidance. This percentage is below the 5-year average of 59% and below the 10-year average of 67%. In terms of revisions to EPS estimates, analysts lowered EPS estimates for Q2 2023 for S&P 500 companies by 0.8% in aggregate during the month of April, which was much smaller than the 5-year average of -1.9% and the 10-year average of -1.8% for the first month of a quarter. For more details on estimate revisions, please see our article at this link: https://insight.factset.com/analysts-making-smaller-cuts-than-average-to-eps-estimates-for-sp-500-companies-for-q2

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