Industry Reports – Mon 2 Apr, 2018

Record-High Increase in S&P 500 EPS Estimates for Q1 and CY 2018

This is the article that Marc Chandler noted in our interview. Earnings estimates and the revisions upward were historic (at least for FactSet data) on a number of fronts. Kind of curious that even though earnings kept being revised upward the markets had the most volatile quarters in history.

Click here to visit the original posting site over at FactSet.

… Here’s the article…

During the first quarter, analysts increased earnings estimates for companies in the S&P 500 for the quarter. The Q1 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for all the companies in the index) has increased by 5.4% (to $36.24 from $34.37) during this period. How significant is a 5.4% increase in the bottom-up EPS estimate during a quarter? How does this increase compare to recent quarters?

Comparing EPS Estimates to Recent Quarters

On average, the bottom-up EPS estimate usually decreases during a quarter. During the past five years (20 quarters), the bottom-up EPS estimate has recorded an average decline of 3.9% during a quarter. During the past 10 years (40 quarters), the bottom-up EPS estimate has recorded an average decline of 5.5% during a quarter. During the past 15 years (60 quarters), the bottom-up EPS estimate has recorded an average decline of 4.1% during a quarter.

In fact, the first quarter of 2018 marked the largest increase in the bottom-up EPS estimate during a quarter since FactSet began tracking the quarterly bottom-up EPS estimate in Q2 2002. The previous record for the largest increase in the bottom-up EPS estimate was 4.8%, which occurred in Q2 2004.

At the sector level, 10 of the 11 sectors recorded an increase in their bottom-up EPS estimates during the quarter, led by the Energy (+14.6%), Telecom Services (+14.1%), and Financials (+11.3%) sectors.

Analysts have not only increased EPS estimates for the first quarter, but also for the full year. The CY 2018 bottom-up EPS estimate (which is an aggregation of the median 2018 EPS estimates for all of the companies in the index and can be used as a proxy for earnings) has increased by 7.1% (to $157.77 from $147.24) since December 31, 2017.

This increase marked the largest increase in the annual EPS estimate for the index over the first three months of the year since FactSet began tracking the annual bottom-up EPS estimate in 1996.

Sector-Level Breakdown

At the sector level, 10 of the 11 sectors have recorded an increase in their bottom-up EPS estimates for 2018 during this window, led by the Energy sector (+18.0%), Telecom Services (+15.3%), Industrials (+10.2%), and Financials (+9.9%) sectors.

What has driven the increase in the bottom-up EPS estimate for Q1 2018 and CY 2018 over the past three months? The decrease in the corporate tax rate for 2018 due to the new tax law is clearly a significant factor in the upward revisions to EPS estimates. The rapid increase in earnings expectations for Q1 2018 and CY 2018 occurred just after the …read more

Source:: The Korelin Economics Report

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