Analyst activity is turning sharply higher after strong Q1 reports

8 May 2023 “Objects in the mirror are not as bad as you thought they were” After several sub-par quarters and a period of aggressive estimate cuts, Q1 earnings reports have broadly beaten the reduced earnings forecasts. This has triggered not just higher stock prices but a broad and rapid upturn in the pattern of […]

Do Analyst Estimate Revisions (Still) Help Forecast Relative Stock Returns?

15 January 2023 Some of the common questions among fund managers who are looking at Mill Street’s stock selection and asset allocation tools are on the topic of whether using analyst estimate revisions metrics for stock return forecasting is useful: “Do analyst estimates really matter for stocks nowadays? “ “Aren’t equity analysts always conflicted, and […]

Analysts have become quite bearish on US earnings forecasts

A question we have heard several times from clients has been: when will equity analysts get as bearish as investors have been recently? Well, analysts may be getting closer to that point now, particularly for the large-cap US stocks that dominate the cap-weighted indices.

Sector Earnings Estimate Revisions Update: Divergence in Commodities

Tracking analyst earnings estimate revisions activity (i.e., are estimates rising or falling, and by how much?) is a key feature of our research. With earnings season underway, we can check in on how revisions activity looks across the 11 US sectors, where we find, among other things, a big divergence between the commodity-related sectors of Energy and Materials.

Corporate earnings are fine, but estimates are no longer rising broadly

The level and growth rate of corporate earnings remain reasonably good – earnings are at record highs, and are expected to grow about 10% this year and next. However, analysts are no longer revising their earnings forecasts higher on average, halting a trend that has generally been in place since mid-2020.

The table below shows the current consensus earnings per share estimates for the S&P 500 index (based on the bottom-up aggregation of individual company estimates). While estimates are slightly higher than they were three months ago, in the last month there has been essentially no change in either this year or next year’s estimate.

Index earnings expectations for US and Europe

As Q1 earnings season gets under way, below we review the current consensus estimates for the US (S&P 500) and Europe (Stoxx 600).


The table below shows the current bottom-up consensus estimates for the S&P 500 for Q1, Q2, and Q3 of this year.

It also shows the percentage change in each quarterly estimate from one month ago, and the expected percent growth in earnings from the year-ago quarter.

Large-cap estimate revisions holding up much better than small-caps

Our indicators of analyst earnings estimates revisions in the US highlight a key theme: revisions for large-cap (and mid-cap) stocks have held up much better recently than those of small-cap stocks.

While the proportion of analysts raising their earnings estimates relative to those cutting estimates has been declining ever since its extremely high peak in the middle of last year, the difference between large-cap and small-cap revisions has favored large-caps, and has shifted further in favor of large-caps most recently.

Macro events overshadow a positive earnings season

With macro events dominating the headlines (Ukraine, Fed, oil), along with a high-profile “blow up” or two (i.e., Meta, PayPal), it is perhaps not surprising that there has been less attention lately on the overall Q4 earnings season results. And while almost any earnings season might seem disappointing after the string of blockbuster quarters from late 2020 through 2021, the reports for Q4 2021 have in fact been reasonably good overall.  Thus far, the company guidance has been sufficiently supportive that analysts are still raising estimates for this year and next, a contrast to the usual pattern of trimming calendar year estimates over the course of a year.

Sector estimate revisions led by Technology, Energy, and Real Estate

Earnings estimates in the US continue to rise overall, helped by the continued solid economic backdrop, but the pace has eased from last year’s extraordinarily positive levels and divergences among sectors are more visible now.

Part of our sector analysis includes monitoring the aggregate earnings estimate revisions trends for the 11 GICS sectors as well as the more granular industries (we track 62 in the US currently). One of the key metrics is what we call “revisions breadth”, which is the net proportion of analysts covering a stock who have most recently raised their earnings forecasts versus those who have lowered estimates. Thus breadth readings can theoretically range from +100% (if all analysts are raising estimates) to -100% (if all analysts are reducing estimates). Thus higher is better on revisions breadth as it indicates the fundamental news is broadly improving within a sector.

Earnings expectations for 2022

With 2021 now in the history books, earnings reporting season for Q4 and the full year is set to begin soon. Below we update the current consensus earnings outlook for Q4 as well as the coming year for the S&P 500. We also drill into expectations for sector earnings growth for this year.

The bottom line, so to speak, is that analysts expect solid but more moderate growth in earnings of about 9%, led by gains in the Industrials and Energy sectors, with Financials and Real Estate the only sectors expected to show declines in earnings this year.