By Senad Karaahmetovic
UBS strategist Keith Parker sees “lofty” consensus expectations for what the S&P 500 can earn in 2023. The S&P 500 staged a rally in recent months that saw it hit the highest levels since last August.
At the same time, quarterly EPS has fallen by roughly 12% from Q2 '22 to Q4 '22.
“Consensus estimates for Q1 '23 have been cut such that annualized EPS is expected to be $211 next quarter, slightly above Q1 '21 levels. Lofty consensus expectations are looking for 12.5% y/y growth between Q1 '23 and Q1 '24 on solid sales growth and margin expansion,” Parker said in a client note.
UBS economists still expect the U.S. to enter a recession later this year. As a result, Parker believes that the S&P 500 EPS estimates have more room to fall. The strategist projects an 11% drop to $198 for the S&P 500 EPS in 2023.
“Even in a soft landing scenario, over 12% EPS growth is a very high bar. We see further downgrades to "hockey stick" projections amid still weak growth and cost pressures - with recession risk as the ultimate driver of larger earnings declines. In addition, the weakest earnings quality since at least 2000 points to ~15% downside to EPS if profits reconnect with cash flow,” Parker further said in a note.
S&P 500 futures are up about 10 points in pre-market Thursday.