Earnings (General News) 02 (Oct 16 - Dec 25)

[winston]

Historically, next-year S&P 500 EPS expectations drop about 10% on average in the second half of a calendar year. However, earnings estimates have not fallen that much yet.

In addition, this year Wall Street is worried about a recession, so 2023 EPS estimates could drop even more than usual.

However, the WSJ reported that analysts have finally begun to lower their earnings estimates, at least for Q4 that is. They are now projecting the first annualized quarterly earnings decline since 2020.

Analysts at the end of June saw profit growing roughly 9% in the fourth quarter; they see a contraction of around 2% as of Friday, FactSet figures show.

But looking at 2023, many analysts remain stubborn in their unwillingness to revise earnings estimates lower. Consensus estimates call for 5% earnings growth in 2023.

Saxo Bank notes that the 12-month forward earnings per share estimate on the S&P 500 is currently at $235.34 which is 7% above the expected full-year 2022 EPS of $219.38. That’s too high, they reckons.

Source: Investor Place

[behappyalways]

In a median recession, earnings drop by ~20%.
https://mobile.twitter.com/MacroAlf/sta ... 5275167745

[winston]

2023 Earnings

Analysts — who cover individual stocks and sectors — have been reducing 2023 earnings estimates at a fairly rapid pace.

At the beginning of October, next year’s earnings were expected to rise by 7.8%. Today, they are at 4.8%.

Strategists, on the other hand, who look at the stock market from a top-down, “macro” perspective (they estimate prices based on economic data, not company reports), have a much dimmer perspective.

At the start of December, the average 2023 estimate for S&P 500 earnings from 19 top Wall Street strategists called for them to decline by an average of 6.5%.

That’s a spread of more than 11 percentage points between the strategists and analysts.

Even assuming that analysts are historically an optimistic lot (they are), that is a wide spread.

Source: Investor Place

[behappyalways]

General Mills' Sliding Sales Volumes Flash Latest Warning
https://www.zerohedge.com/markets/gener ... st-warning

[winston]

Downward drift in Q1-2023

We now have analysts' consensus estimates for the operating earnings per share of the S&P 500 through the December 15 week. They lowered their forecast for Q4-2022, now showing a gain of only 0.4% y/y. The actual results will be released by the companies during the upcoming earnings reporting season in January and February.

The analysts' estimates for the four quarters of next year have held relatively steady in recent weeks with a downward drift in Q1-2023.

On an annual basis, the 2022, 2023 and 2024 consensus estimates, have been relatively stable since the end of the previous earnings season with their current values at $220, $230, and $254.

Forward earnings have also been stable around the current value of $230.

That’s far rosier than many have predicted. Earlier this month, JP Morgan cut it 2023 earnings forecast for S&P 500 companies to $205.

Source: Investor Place

[winston]

Earnings Growth: For Q4 2022, the estimated earnings decline for the S&P 500 is -4.1%.

If -4.1% is the actual decline for the quarter, it will mark the first time the index has reported a year-over-year earnings decline since Q3 2020 (-5.7%).

During the fourth quarter, analysts lowered EPS estimates for the 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 6.5% (to $54.01 from $57.78) from September 30 to December 31.

For context, over the past five years, the average decline for a bottom-up EPS estimate is only 2.5%. If we extend that to the past 10 years, that average climbs only to 3.3%. So, this 6.5% decline is far more than usual.

Analysts’ earnings per share (EPS) estimates for calendar year (CY) 2023 are finally seeing cuts, too.

The bottom-up EPS estimate for CY 2023 declined by 4.4% (to $230.51 from $241.20) from September 30 to December 31.

For context, over the last 10 years, the average decline in the bottom-up EPS estimate for the next year during the fourth quarter has been 1.3%. So, this is a substantial cut.

Source: Investor Place

[winston]

US 4Q Earnings

If we look at Q4 earnings expectations, it should be no surprise that the Wall Street analyst community has spent the past several months dialing down earnings expectations for Q4.

They've gone from expecting 3.5% earnings growth (back in September), to the expectation of a 4.1% decline now.

Source: Forbes

[behappyalways]

Fully Priced-In: Even Goldman Expects Sharp Contraction In Profit Margins In 2023
https://www.zerohedge.com/markets/fully ... rgins-2023

[winston]

‘Fake Ebitda’ masks risk in debt-laden companies

by Shannon D Harrington

97% of speculative-grade companies that announced acquisitions in 2019 fell short of forecasts in their first year of earnings, according to S&P.

For 2018 deals, it was 96% and 93% for 2017 acquisitions.

Even after the economy was flooded with fiscal and monetary stimulus after the pandemic, about 77% of buyouts and acquisitions from 2019 were still short of their projected earnings, S&P’s research shows.

The bigger worry is that years of rosy earnings projections is masking the amount of leverage on the balance sheets of the lowest-rated companies.

Source: Bloomberg

https://www.theedgemarkets.com/node/655832

[winston]

Q1 2023 Earnings

For Q1 2023, the estimated earnings decline for the S&P 500 is -6.6%.

If -6.6% is the actual decline for the quarter, it will mark the largest earnings decline reported by the index since Q2 2020 (-31.8%)

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.

FactSet goes on to point out that analysts lowered EPS estimates for the quarter by 6.3% (to $50.75 from $54.13) from December 31 to March 30.

For context, during the past five years, the average decline in the bottom-up EPS estimate during a quarter has been just 2.8%. So, these cuts are significant.

The question is “are they significant enough?”

Mike Wilson, Morgan Stanley’s chief investment officer doesn’t believe so:

Given the events of the past few weeks, we think guidance is looking more and more unrealistic, and equity markets are at greater risk of pricing in much lower estimates ahead of any hard data changes...

This is typically how bear markets end—i.e., P/E multiples fall precipitously and unexpectedly, catching many investors off guard.

The recent underperformance of small caps and low-quality stocks suggests it could be imminent.

Source: Investor Place