Latest Earnings Insight from Factset last week:
Analysts and companies have lowered their earnings expectations for the second quarter to date. As a result, estimated earnings for the S&P 500 for the second quarter are below expectations at the start of the quarter. The index is predicted to report its lowest earnings growth since Q4 2020
In terms of earnings estimate revisions for companies in the S&P 500, analysts have decreased earnings estimates in aggregate for Q2 2022. On a per-share basis, estimated earnings for the second quarter have decreased by 1.0% since March 31. While this decline is smaller than the 5-year average (-2.3%), 10-year average (-3.3%), and the 15-year average (-4.7%) for a quarter, it is also tied (with Q1 2022) for the largest decline in the quarterly EPS estimate since Q2 2020 (-37.0%).
More S&P 500 companies have issued negative EPS guidance for Q2 2022 compared to recent quarters as well. At this point in time, 103 companies in the index have issued EPS guidance for Q2 2022, Of these 103 companies, 71 have issued negative EPS guidance and 32 have issued positive EPS guidance. This is the highest number of S&P 500 companies issuing negative EPS guidance for a quarter since Q4 2019 (73). The percentage of companies issuing negative EPS guidance for Q2 2022 is 69% (71 out of 103), which is above the 5-year average of 60% and above the 10-year average of 67%.
Because of the higher number of companies issuing negative EPS guidance and the net downward revisions to earnings estimates, the estimated (year-over-year) earnings growth rate for Q2 2022 is lower now relative to the start of the second quarter. As of today, the S&P 500 is expected to report (year-over-year) earnings growth of 4.3%, compared to the estimated (year-over-year) earnings growth rate of 5.9% on March 31.
If 4.3% is the actual growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q4 2020 (3.8%). Six of the eleven sectors are projected to report year-over-year earnings growth, led by the Energy, Industrials, and Materials sectors. On the other hand, five sectors are predicted to report a year-over-year decline in earnings, led by the Financials sector.
In terms of revenues, analysts have continued to be more optimistic than normal in their revenue estimate revisions. Because of the net upward revisions to revenue estimates, the estimated (year-over-year) revenue growth rate for Q2 2022 is higher now relative to the start of the second quarter. As of today, the S&P 500 is expected to report (year-over-year) revenue growth of 10.2%, compared to the estimated (year-over-year) revenue growth rate of 9.6% on March 31.
If 10.2% is the actual growth rate for the quarter, it will mark the sixth-straight quarter of year-over-year revenue growth above 10% for the index. All eleven sectors are projected to report year-over-year growth in revenues, led by the Energy and Materials sectors.
Looking ahead, analysts expect earnings growth of 10.8% for Q3 2022, and 10.0% for Q4 2022. For CY 2022, analysts are predicting earnings growth of 10.4%.
The forward 12-month P/E ratio is 15.8, which is below the 5-year average (18.6) and below the 10-year average (16.8). It is also below the forward P/E ratio of 19.4 recorded at the end of the first quarter (March 31), as prices have decreased while the forward 12-month EPS estimate has increased since March 31.
(Valuations are attractive, but is the E accurate?)
During the upcoming week, seven S&P 500 companies (including two Dow 30 components) are scheduled to report results for the second quarter.
Earnings Surprises still getting punished
