Looking Ahead to Q3 Earnings
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:
- There has been a notable improvement in the earnings outlook in recent months, with positive revisions for several key sectors since the start of Q2 helping offset continued pressure on estimates for others. These cross-currents have helped keep the overall earnings picture essentially unchanged since April 2023.
- For 2023 Q3, total S&P 500 earnings are currently expected to be down -1.6% from the same period last year on +0.8% higher revenues, the 4th back-to-back quarter of declining earnings for the index.
- Excluding the drag from the Energy sector, whose earnings are expected to decline -40.2% in Q3, earnings for the other 15 Zacks sectors in the S&P 500 index would be up +3.8% on +3.5% higher revenues.
- Looking at the calendar-year picture, total S&P 500 earnings are expected to rebound +11.9% next year after the modest decline in 2023.
We have regularly been flagging the steady improvement in the revisions trend since the start of Q2, which has become more entrenched in recent months. We have to look below the index level to appreciate the cross current in estimates at the sector levels.
The aggregate Q3 earnings estimate for the S&P 500 index has declined about -1% since the start of the period, with rising estimates for six sectors, including Tech, offsetting continued weakness of varying magnitudes in the remaining sectors.
Had it not been for the continued pressure on Energy sector estimates, the revisions trend for Q3 for the S&P 500 index would be modestly positive since the start of the period.
In addition to the Tech sector, Q3 estimates have moved higher for the Construction, Autos, Medical, Retail, and Industrials sectors.
For the Tech sector, you can see this favorable revisions trend in estimates for operators like Meta Platforms META, Alphabet GOOGL, Nvidia NVDA, and others.
The magnitude of positive revisions that Nvidia is experiencing is in a league of its own, as the chart below shows.
Image Source: Zacks Investment Research
But the gains in estimates at Alphabet, Meta, and others are as material and indicative of the overall improving earnings outlook.
The chart below shows the overall earnings picture on a quarterly basis.
Image Source: Zacks Investment Research
As you can see from these quarterly earnings-growth expectations, the long-feared recession doesn’t show up in this near-term earnings outlook. A big-picture view of corporate profitability on a long-term basis doesn’t leave much room for a recession either, as you can see in the chart below.
Image Source: Zacks Investment Research
Given the emerging consensus on the ‘soft-landing’ outlook for the economy, one can expect this favorable turn in the overall earnings picture to strengthen further as companies report Q3 results and share trends in underlying business.
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