By Senad Karaahmetovic
Goldman Sachs strategists slashed the 2023 EPS forecast for the S&P 500 to 0%, noting that the Q3 net margins contracted year-over-year for the first time since Covid.
The previous forecast was calling for 3% growth, but they say that margin contraction is higher than expected, except for the Energy sector. This is the key reason why the overall index margins are above 2019 levels, the strategists wrote in a client note.
On the Q3 earnings season, they note the reporting so far has been “disappointing,” led by Communications Services, where the EPS fell by 26%.
As a result, the EPS forecast for 2022 is lowered to $224 from $226, for 2023 to $224 from $234, and for 2024 to $237 from $243. The new forecasts reflect annual growth of 7%, 0%, and 5%, respectively. The year-end 2022 and 2023 index price targets are maintained.
“Since the start of 3Q, analysts have lowered aggregate S&P 500 EPS by 7%. Historically, forecasts have typically declined by 3% during this same period. Communications Services witnessed the largest cuts (-16%) while Energy estimates increased by 13%. However, in coming months we expect additional negative EPS revisions due to overly optimistic margin outlooks. Consensus 2023 EPS estimate equals $233, 4% above our baseline,” the strategists said in a client note.
In case the recession hits, they see the S&P 500 EPS falling by 11% to $200.