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

Given the continuing concerns in the market about bank liquidity and a possible broader economic recession, did analysts lower EPS estimates more than normal for S&P 500 companies for the first quarter?

The answer is yes. During the first quarter, analysts lowered EPS estimates for the 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 6.3% (to $50.75 from $54.13) from December 31 to March 30.

In a typical quarter, analysts usually reduce earnings estimates during the quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 2.8%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.3%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 4.6%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate during a quarter has been 3.8%.

Thus, the decline in the bottom-up EPS estimate recorded during the first quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average.

While analysts were decreasing EPS estimates in aggregate for the first quarter, they were also decreasing EPS estimates in aggregate for all of CY 2023. The bottom-up EPS estimate for CY 2023 declined by 3.8% (to $221.50 from $230.33) from December 31 to March 30.

During the first quarter, analysts usually reduce earnings estimates for the current fiscal year. During the past five years (20 quarters), the average increase in the bottom-up EPS estimate for the year during the first quarter has been 0.2%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate for the year during the first quarter has been 1.4%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate for the year during the first quarter has been 2.7%. During the past 20 years (80 quarters), the average decline in the bottom-up EPS estimate for the year during the first quarter has been 2.1%.

Thus, the decline in the CY 2023 bottom-up EPS estimate recorded during the first quarter was larger than the 5-year average, the 10-year average, the 15-year average, and the 20-year average for the first quarter.

It is interesting to note that the forward 12-month P/E ratio for the S&P 500 has increased to 17.8 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.

The Earnings Insight report will be published one day early next week on April 6 due to the market holiday on April 7.

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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