Are Earnings Estimates Going Down?

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

• The market’s newfound macroeconomic worries as reflected in the yield curve have yet to show up in earnings estimates for the current and coming periods. Estimates have come down lately, but the magnitude of negative revisions is fairly modest and not reflective of the macro growth cliff that some have started fearing.

• Excluding the negative revisions to the Finance sector, 2022 Q1 estimates for the remaining sectors would be up +0.6%. On the flip side, aggregate quarterly estimates would be down -1.7% had it not been for the positive revisions to the Energy sector estimates.
   

The overall earnings picture has been very strong lately, with the growth rates and the absolute dollar totals at very high levels. The growth pace decelerates significantly in the coming periods, as you can see in the chart below that provides a big-picture view of earnings on a quarterly basis.

Image Source: Zacks Investment Research

The chart below shows the overall earnings picture on an annual basis, with the growth momentum expected to continue.

Image Source: Zacks Investment Research

Looking at the revisions trend in the aggregate, estimates are still going up, though only modestly so. There are plenty of cross currents once we look at the revisions trend at the granular level, with rising estimates in a few sectors offsetting estimate cuts in others.

In fact, estimates have been going down for 9 of the 16 Zacks sectors since the start of the year, with the biggest declines in the Consumer Discretionary, Utilities, Transportation, and Conglomerates sectors. Offsetting these negative estimate revisions to full-year 2022 estimates, are rising estimates for the Energy, Construction and Autos sectors.

The big banks that will be kicking off the reporting cycle for the Finance sector next week have been suffering estimate cuts, with Q1 EPS estimates for JPMorgan JPM, Bank of America BAC and Citigroup C all going down in recent days, though Citi’s estimates have been cut the most given its pronounced Russia exposure.

Energy sector estimates had been going up as a result of rising oil prices, even before the Ukraine situation and we can see this within all of the major players in the sector. The significant estimate cuts to the Transportation sector, like air carriers and truckers, represent the flip side of what’s happening to the Energy sector estimates.

There is a rising degree of uncertainty about the outlook, being driven by a lack of macroeconomy visibility and reflected in the Treasury yield curve that is at risk of inversion.

The Ukraine situation appears to be exacerbating pre-existing supply-chain issues, which combined with its impact on oil prices, is weighing on the inflation situation in hard-to-predict ways. The evolving earnings revisions trend will reflect this macro backdrop.

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