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S&P 500 EARNINGS SEASON UPDATE: OCTOBER 22, 2023

The S&P 500’s third quarter earnings season is off to a mediocre start at this early point. Both the quantity and the quality of positive earnings surprises are close to their ten-year norms. Nevertheless, the positive EPS surprises that have been announced over the last few weeks have been countered by downward revisions to EPS projections for two companies in the health care industry. Consequently, the index is indicating lower third-quarter earnings today compared to the conclusion of last week and the quarter. For the fourth consecutive quarter, the S&P 500 is currently reporting lower earnings compared to the same period last year.

As of now, actual results for Q3 2023 have been reported by 17% of the S&P 500 firms. Slightly less than the 10-year average of 74% and below the 5-year average of 77%, 73% of these firms have posted actual EPS above forecasts. Companies are reporting earnings that are, on average, 6.6% higher than projections. This is comparable to the 10-year average of 6.6% but lower than the 5-year average of 8.5%.

Nonetheless, the positive earnings surprises that corporations revealed over the last week were countered by downward revisions to EPS projections for two Health Care sector companies. Consequently, the index is indicating lower third-quarter earnings today compared to the conclusion of last week and the quarter. In contrast to an earnings growth rate of 0.3% last week and an earnings decline of -0.3% at the end of the third quarter (September 30), the blended earnings decline for the third quarter (which combines actual results for companies that have reported and estimated results for companies that have yet to report) is -0.4% today.

In the event that the quarter’s actual decline is -0.4%, the index will have had year-over-year profit declines for four consecutive quarters.

Leading the way in year-over-year profit increase are the eight out of eleven sectors—communication services, consumer discretionary, and financials—all of which are reporting or are anticipated to report gains. However, three industries—energy, materials, and health care—are reporting lower profits year over year.

Revenue-wise, 66% of S&P 500 businesses reported actual revenues that were higher than expectations; this is higher than the 10-year average of 64% but lower than the 5-year average of 68%. Overall, businesses are reporting sales that are 0.7% higher than projected, which is less than the 1.3% 10-year average and the 2.0% 5-year average.

Today’s blended revenue growth rate for the third quarter is 1.8%; last week’s revenue growth rate was 1.9%, and the third quarter’s end (September 30) saw a revenue growth rate of 1.6%.

The main factor boosting the index’s total revenue growth rate after the end of the quarter has been upward revisions to sales expectations for businesses in the energy sector.

In the event that the actual revenue growth rate for the quarter is 1.8%, this will be the index’s eleventh straight quarter of revenue growth.

The Consumer Discretionary sector is leading the nine sectors that are reporting (or are expected to report) revenue growth over the previous year. However, the energy and materials sectors are reporting lower revenue year over year.

Analysts predict that Q4 2023 earnings will increase by 6.7% (year over year). Analysts forecast 0.7% annualized earnings growth for CY 2023. Analysts predict 12.2% year-over-year growth in earnings for CY 2024.

The P/E ratio for the next twelve months is 17.7, higher than the 10-year average (17.5) but lower than the 5-year average (18.7). Furthermore, it is lower than the forward P/E ratio of 17.8 that was noted on September 30, the conclusion of the third quarter.

One hundred and sixty S&P 500 companies—twelve of which are Dow 30 components—are slated to release their third-quarter results this coming week.

Q3 2023: Scorecard

Source: factset.com

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