Webinar Recap: Our Investor Outlook for Earnings, Energy, ESG

What are the material earnings, energy and ESG themes for investors to consider this year?

Learn more in this discussion recap from three FactSet topical experts. They presented their views in a Feb. 8 webinar with RiskReversal Media. You can also view a video replay.

Earnings: What are key areas of earnings strength and weakness analysts expect at the macro and sector levels?

John Butters, VP, Senior Earnings Analyst

Analysts have lowered CY 2023 earnings estimates across S&P 500 companies since the second half of 2022. The transition from upward to downward estimates began late June 2022 at the peak of just over $250 per share. The trend lower has continued across multiple sectors into the first five weeks of the year. Analysts are now projecting $224 per share in earnings for CY 2023.

Source: FactSet

While earnings estimates are dropping, earnings multiples have expanded. Notably, the market has gone up to 18.1 forward P/E for the S&P 500, compared to 16.7 on Dec. 31 and higher than the 10-year average of 17.

The S&P 500 is now expected to report year-over-year earnings growth of 3% for CY 2023—with all growth forecast for the second half of the year. Q1 and Q2 are estimated negative at -4.4% and -3.0%, respectively, followed by growth estimates of 3.5% in Q3 and 10.4% in Q4. Longer term, analysts are calling for 11% earnings growth in CY 2024.

At the sector level this year, analysts are optimistic across eight of 11 sectors, led by the Consumer Discretionary sector. In a turnabout as the largest contributor to earnings growth in CY 2022, the Energy sector is projected to be the largest drag on S&P 500 earnings growth in CY 2023.

Source: FactSet

Energy: What’s ahead for oil and natural gas production and prices this year?

Matt Hagerty, Senior Manager of Energy Markets

Oil and natural gas producers have strengthened their balance sheets and delivered cash back to shareholders. The financial improvements follow several years of volatility that resulted from regulatory, political, and COVID headwinds along with high production levels. Improved balance sheets have drawn investors back towards the energy space, though commodity pricing pressure in 2023 could test investors’ resolve to stay in the sector in the face of lower dividends and buybacks.

Natural gas pricing in 2023 is expected to be lower than last year’s levels. Russia’s invasion of Ukraine drove prices higher in 2022, but the mild winter weather has exposed the oversupply in the US market. Today, the U.S. is generating a significant amount of natural gas production, but there’s not much new export demand expected for 2023 and 2024. As a result, lower cash flow could prompt producers to tighten either their spending on new production or shareholder returns (e.g., decreasing share buy-backs and/or dividends).

Source: FactSet

ESG: As ESG gains further traction, what should investors watch for in the regulatory and data spaces?

Eli Reisman, Senior Director of Product Management, ESG

Around the world, there is significant momentum toward sustainable finance regulation. Legislation is either being ratified or considered across 20+ countries or regions. The intention is to provide standardized ESG disclosures and metrics for companies and investors. In the near term, variations across countries could present challenges to companies and investors unless there is an effort to harmonize across jurisdictions.

Greenwashing—with a 450% surge in mentions across FactSet sources between December 2020 to December 2022—is on regulators’ and investors’ radars. Many of the proposed and ratified sustainable finance legislations aim to eliminate greenwashing, putting it at the forefront of the ESG discussion. However, investors and regulators wrestle with how to measure, expose and prevent greenwashing, as most of today’s ESG datasets are based on companies’ self-disclosed information. As a result, there is a need for more timely data that offers an alternative perspective and balances corporate disclosure.

Source: FactSet

The ESG data market has been growing 28% annually, according to Environment Analyst, over the past five years across more than 160 vendors. Investment firms seeking to achieve multiple workflows with their ESG data typically must purchase distinct datasets from several vendors. As a result, implementation of ESG data can be laborious and complex making it difficult to generate a holistic analysis. As this proliferation of data continues to cause problems, we expect investors will either consolidate vendors or seek solutions that connect datasets for them.

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