Stock Market Rises Despite Weak Earnings Trend
The 2023 stock market has had a significant increase thus far, but the year’s first earnings season has revealed a negative trend with lower profit estimate revisions. 20 S&P 500 firms have defied this pattern, according to FactSet polling, with the greatest positive revisions to their 2023 calendar earnings-per-share (EPS) expectations. On the other side, there is a list of the 20 benchmark index businesses whose 2023 EPS forecasts have seen the worst adjustments.
Increased P/E valuations are supported by positive EPS revisions.
The strong upward adjustments to the EPS projections might eventually result in certain equities being valued at a higher price-to-earnings (P/E) ratio. On the other hand, if successive profit predictions don’t improve, negative revisions might have a long-term impact on share values. Nevertheless, the majority of the stocks on the list with the worst EPS estimate revisions have increased so far this year. Investors’ excitement about firms’ cost-cutting initiatives, which are anticipated to temporarily decrease profits, may be the cause of this.
Tesla Inc. Against the Flow
One of the businesses that has bucked the trend is Tesla Inc. The shares have increased by 58% so far this year despite a 26% fall in the average 2023 EPS projection from December 31, 2022. This may be as a result of investors thinking that the stock’s 65% decline in 2022 was overstated. Since China’s reopening, its EV consumers are now choosing Tesla over domestic rivals, which is helping the stock rise.
Consensus Earnings Estimates Supporting Stock Prices
Consensus earnings projections from analysts are essential for long-term sustainability of stock values. This is computed by dividing the share price of a firm today by the consensus estimate of its next 12-month earnings per share. Analysts anticipate that the S&P 500’s weighted EPS will rise by 2% to $222.60 in calendar 2023 from $217.25 in 2022 despite concerns about a probable recession brought on by the Federal Reserve’s interest-rate rises intended to contain inflation.
Businesses with Higher Profits
According to FactSet data, experts predict that 275 S&P 500 firms will increase their earnings this year, 223 businesses will see a fall in EPS, and one company will have EPS that is unchanged from last year.
pathetic EPS Revisions
Regrettably, just 183 businesses in the S&P 500 have had an upward revision to their consensus 2023 EPS, while 28 have remained steady, and 288 have experienced a decline. For S&P 500 firms, there were 258 positive 2022 EPS estimate revisions last year. This demonstrates a change from 52% of firms reporting favorable changes to 58% reporting unfavorable revisions.
Businesses Resisting the Trend
The 20 S&P 500 businesses with the biggest jump in consensus EPS expectations for 2023 since the end of 2022 are included, with Wynn Resorts Ltd. at the top of the list as a result of better business in Macau after the Chinese government lifted COVID-19 limitations.
The worst EPS estimate updates
According to average projections, just 4 S&P 500 businesses are anticipated to report net losses for the calendar year 2023. These four businesses, along