Following the trend of earnings revisions

Note: The following is an excerpt from this week’s earnings trend report. You can access the full report which contains detailed historical data and estimates for the current and future periods, please click here>>>

Here are the key points:

  • Earnings growth was still expected to slow in the current and future period due to normalization and tough comparisons. But now macroeconomic headwinds are adding to the moderation in the growth outlook.
  • S&P 500 total earnings for the first quarter of 2022 are expected to be up +3.5% from the same period last year on revenues up +10.0%. Earnings growth for the quarter would be slightly in negative territory excluding energy.

The overall earnings picture has been very strong lately, with growth rates and absolute dollar totals at very high levels. The pace of growth slows significantly in the coming periods, as you can see in the chart below which gives an overview of earnings on a quarterly basis.

Image source: Zacks Investment Research

The chart below presents the overall earnings picture on a yearly basis, with the growth momentum expected to continue.

Zacks Investment Research
Image source: Zacks Investment Research

Looking at the trend of revisions in the aggregate, estimates continue to rise, albeit modestly. There are a lot of cross-currents once we look at the trend of revisions at a granular level, with higher estimates in a few sectors offsetting lower estimates in others.

In fact, estimates have fallen for 9 of Zacks 16 sectors since the start of the year, with the biggest declines in the consumer discretionary, utilities, transportation and conglomerate sectors. These negative revisions to the estimates of the estimates for the whole of 2022 are offset by upward estimates for the energy, construction and automotive sectors.

Hilton Worldwide HLT and Las Vegas Sands LVS are examples of consumer discretionary operators that have recently suffered rating cuts. Examples of other sectors on the downside include Southwest LUV in the transportation sector and General Electric GE in the conglomerate sector.

Estimates for the energy sector had risen due to higher oil prices even before the situation in Ukraine and we can see this across all major players in the sector. Estimates in the construction and automotive sectors have also risen lately.

There is a growing degree of uncertainty about the outlook, due to a lack of visibility on the macro economy. The situation in Ukraine appears to be exacerbating pre-existing supply chain issues, which, combined with their impact on oil prices, are weighing on the inflation picture in ways that are difficult to predict. The evolving trend of earnings revisions will reflect this macroeconomic backdrop.

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