FactSet Research : Analysts Continue To Increase S&P 500 EPS Estimates for Q3, but at a Slower Pace vs. Q2

Analysts Continue To Increase S&P 500 EPS Estimates for Q3, but at a Slower Pace vs. Q2 Earnings

By John Butters| August 2, 2021

During the month of July, analysts increased earnings estimates for companies in the S&P 500 for the third quarter. The Q3 bottom-up EPS estimate (which is an aggregation of the median EPS estimates for Q3 for all the companies in the index) increased by 3.6% (to $49.22 from $47.50) during this period. How significant is a 3.6% increase in the bottom-up EPS estimate during the first month of a quarter? How does this increase compare to recent quarters?

In a typical quarter, analysts usually reduce earnings estimates during the first month of the quarter. During the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.7%. During the past 10 years (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.1%. During the past 15 years (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 2.2%.

In fact, the third quarter marked the fifth straight quarter in which the bottom-up EPS estimate increased during the first month of the quarter, which is the longest streak since FactSet began tracking this metric in 2002. The previous record was four quarters, which occurred in Q1 2004 through Q4 2004. However, it should be noted that the third quarter also marked the first quarter during this streak in which the percentage increase in the bottom-up EPS estimate was lower compared to the prior quarter. Despite the smaller increase in the first month of Q3 2021 compared to the first month of Q2 2021, the third quarter still marked the third-largest increase in the bottom-up EPS estimate during the first month of a quarter since Q2 2010.

At the sector level, nine sectors recorded an increase in their bottom-up EPS estimate for Q3 during the first month of the quarter, led by the Energy (+14.0%) and Materials (+8.8%) sectors. On the other hand, two sectors recorded a decline in their bottom-up estimate for Q3 during this period, led by the Consumer Staples (-2.1%) sector.

As the bottom-up EPS estimate for the index increased during the first month of the quarter, the value of the S&P 500 also increased during this same period. From June 30 through July 30, the value of the index increased by 2.3% (to 4395.26 from 4297.50). The third quarter marks just the fourth time in the past 20 quarters (five years) in which both the bottom-up EPS estimate for the index and the value of the index increased during the first month of a quarter.

Listen to Earnings Insight on the go! In our weekly Earnings Insight podcast, John Butters provides an update on S&P 500 corporate earnings and related topics based on his popular Earnings Insight publication. The podcast is made available every Monday-listen on Apple podcasts, Spotify, or factset.com.

Disclaimer: The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.