We’ve seen a shift in analyst sentiment over the last two weeks when looking at data in This Week in Earnings and STOXX 600 Earnings Outlook report.
Analysts have been adjusting their full-year 2023 Estimates across both regions in dramatic fashion. In both reports, we highlight a weekly time-series indicating the total number of FY1 EPS revisions over a 7-day period which are divided into ‘up’ and ‘down’ revisions. We always observe a significant rise in the volume of revisions during earnings season as analysts react to company results and adjust future quarter and out-year estimates accordingly.
For the S&P 500, the week ending July 28th saw a total of 2,444 FY1 EPS revisions over a 7-day period, of which 1,489 estimates were revised up in comparison to 955 estimates being revised down. In percentage terms, the number of ‘up’ revisions was 61% compared to 39% down, as shown in Exhibit 1. We’ve seen the ‘up’ revision increase sharply over the last two weeks which may be a sign that we are seeing a bottom in earnings expectations this quarter. For the second half of the year, Q3 earnings growth is penciled in at 1.1% with the bulk of earnings growth coming in Q4 with a forecasted growth rate of 9.3%.
Exhibit 1: S&P 500 Earnings Estimate Revision Trend
Exhibit 2 provides constituent level data for the week ending July 28th sorted by the largest number of upward revisions. Strong results from Meta Platforms saw 39 estimates revised upward for FY1 EPS, which was followed by 37 for Alphabet Inc. Other notable constituents include Visa Inc, McDonald’s Corp, Microsoft (which saw a mixed reaction with 19 upward revisions along with 17 downward revisions), Coca-Cola Co, General Motors Co, and 3M Co.
The last column in Exhibit 2 highlights the StarMine Analyst Revision Model (ARM) score for each company. ARM is a stock ranking model that is designed to predict future changes in analyst sentiment by looking at changes in estimates across EPS, EBITDA, Revenue, and Recommendations over multiple time periods.
We find a positive correlation with the number of analysts revising upward along with a high ARM score (1-100 regional percentile ranking), as most constituents in the table below have a model rank above 70, which is a bullish signal.
Exhibit 2: S&P 500 FY1 EPS Estimate Revisions for week ending July 28th
A similar picture in Europe
Moving to Europe, the week ending August 1st saw a total of 1,911 FY1 EPS revisions over a 7-day period, of which 1,052 estimates were revised up in comparison to 859 estimates being revised down. In percentage terms, the number of ‘up’ revisions was 55% compared to 45% down, as shown in Exhibit 3.
In contrast to the S&P 500, the STOXX 600 is currently forecasted to enter an earnings recession based on analyst estimates. The 2023 Q2 – 2024 Q1 earnings growth rate are all currently negative (Q2: -5.8%, Q3: -9.2%, Q4: -4.5%, 2024 Q1: -9.2%).
Exhibit 3: STOXX 600 Earnings Estimate Revision Trend
Exhibit 4 provides constituent level data for the week ending July 28th sorted by the largest number of upward revisions. Banco Santander saw 16 estimates revised upward for FY1 EPS, which was followed by 14 upward estimate revisions for Unilever. Other notable constituents include Hermes International SCA who are apart of European luxury retail along with airliners including International Consolidated Airlines Group and Ryanair Holdings.
Like Exhibit 2, we find a positive correlation with the number of analysts revising upward along with a high ARM score (1-100 regional percentile ranking), as most constituents in the table below have a model rank above 70, which is a bullish signal.
Exhibit 4: STOXX 600 FY1 EPS Estimate Revisions for week ending July 28th
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