Wall Street Analysts Cut Numbers/Targets

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Wall Street Analysts Cut Numbers/Targets

Wall Street analysts are starting to take their 2H 2022/2023 earnings estimates down, and they are slowly reducing price targets as well. The data here is from FactSet’s weekly Earnings Insight report (link below).

To set the stage, here are the last 2 quarters of S&P 500 earnings per share:

  • Q4 2021: $55.38/share
  • Q1 2022, with 87 percent of S&P companies having reported: $53.60/share
  • Average: $54.50/share

Now, on the positive side of the coin that $53.60/share for Q1 2022 is 3.6 percent better than what analysts had in their models at the start of the current reporting season ($51.75/share). On the not-so-good side, it is 3.2 percent lower than Q4’s $55.38/share. Yes, there is a bit of seasonality between Q4 and Q1 to the detriment of the latter, but down sequential earnings means we’re now (at best) in the middle part of a business cycle when EPS growth is largely reliant on economic growth.

We have been warning that Wall Street analysts’ second half estimates of $60-$61/share are too high versus the current $54-$55/share run rate but can now report that they are starting to come down. Here are 2H 2022 S&P 500 estimates over the last 5 weeks:

  • April 8th: $120.16/share
  • April 14th: $120.20/share
  • April 22nd: $120.93/share (Peak)
  • April 29th: $120.77/share
  • May 6th: $120.31/share

Moreover, just last week analysts started to lower their 2023 S&P 500 EPS estimates as well:

  • April 8th: $250.81/share
  • April 14th: $250.97/share
  • April 22nd: $251.66/share
  • April 29th: $251.67/share (Peak)
  • May 6th: $250.96/share

Lastly, the aggregate price target for the S&P 500 based on Wall Street analysts’ individual stock price targets is also declining:

  • April 8th: 5,282
  • April 14th: 5,268
  • April 22nd: 5,266
  • April 29th: 5,221
  • May 6th: 5,187 (down 2 percent from April 8th)

Takeaway: you might well say “these are small changes, both in EPS and aggregate S&P price target, so how can it matter?” Our view is that it matters because everything happens at the margin in capital markets. Rising estimates and price targets are emblematic of bull markets, and when numbers and targets are coming down we’re clearly in (at best) a deep correction or (at worst) a bear market. The silver lining here is that we can’t bottom convincingly until stocks stop going down on estimate/target cuts. The latter process has finally started. Now we just need stocks to stabilize as the Street further reduces estimates/targets.