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Zacks Earnings Trends Highlights: Alphabet, Meta and Nvidia

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For Immediate Release

Chicago, IL – March 23, 2023– Zacks Director of Research Sheraz Mian says, "Estimates for the period have been coming down over the last few months, with 14 of the 16 Zacks sectors suffering negative revisions since the start of the quarter."

What Should Investors Expect for Q1 Earnings Season?

Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

  • Total S&P 500 earnings for 2023 Q1 are expected to be down -9.4% from the same period last year on +1.8% higher revenues. This would follow the -5.4% decline in the preceding period's earnings (2022 Q4) on +5.8% higher revenues.
  • Estimates for the period have been coming down over the last few months, with 14 of the 16 Zacks sectors suffering negative revisions since the start of the quarter.
  • In terms of growth, 2023 Q1 earnings are expected to be below the year-earlier level for 9 of the 16 Zacks sectors, with Basic Materials (-39.2% decline), Construction (-32%), Medical (-22.5%), Conglomerates (-23.8%), Autos (-17.8%), Technology (-16.4%), and Consumer Staples (-9.2%) having notable declines.
  • Sectors enjoying positive earnings growth in 2023 Q1 include Transportation (+55%), Aerospace (+19.4%), Energy (+6.8%), Utilities (+0.4%), Finance (+2.6%), Industrial Products (+0.8%), and Consumer Discretionary (+14.9%).

The Tech sector has gotten off to a great start in 2023, handily outperforming the S&P 500 index in the year-to-date period. While Tech stocks have lost ground over the last few weeks, the Zacks Tech sector is still up +17.7% in the year-to-date period vs. the +5.2% gain for the market as a whole.

This came after a tough year for the group in 2022 when Tech stocks were big-time losers. The Zacks Tech sector lost -36.2% of its value in calendar year 2022, clearly underperforming the S&P 500 index's -20.7% decline.

These stocks' recent positive follow through has a lot to do with the market's evolving expectations of an end to the Fed's tightening cycle. This view has faced its own share of ups and downs since the start of the year, but uncertainty about the banking industry revived its fortunes.

Higher interest rates resulting from the hawkish Fed posture are a big headwind for these 'long-duration' stocks, a big portion of whose value comes from profitability in future years.

The onset of monetary policy headwinds last year coincided with the group adjusting to the post-Covid world. As we all know, Tech companies were big beneficiaries of Covid-related disruptions.

The post-Covid adjustment view posits that the 2021 jump in the group's earnings brought forward profitability from future years. As you can see in the above two charts, the market expects this 'adjustment' to last through this year, with 'regular' growth resuming next year.

The Tech sector's earnings outlook has been weighed down by the combined effects of post-Covid adjustment and softening demand as a result of the Fed tightening.

As noted earlier, aggregate 2023 earnings estimates for the group have been cut more than -23% since April last year. The magnitude of cuts to some of the major players in the space such as Alphabet (GOOGL - Free Report) , Meta (META - Free Report) , Nvidia (NVDA - Free Report) and others is even more pronounced.

For example, Alphabet is currently expected to bring in $5.12 per share on $247.06 billion in revenues in 2023, representing year-over-year changes of +5.6% and +12.3%, respectively. The current $5.12 per share estimate is modestly down from a month back, but it is actually up +1.6% over the last two months. Full-year 2023 estimates for Nvidia have increased +1.8% over the last two months, while the same for Meta have jumped +31.8% over the same time period.

The Earnings Big Picture

For the current period (2023 Q1), S&P 500 earnings are currently expected to decline -9.4% from the same period last year on +1.8% higher revenues.

As has been the case over the few quarters, estimates for 2023 Q1 have been steadily coming down.

Please note that the magnitude of cuts to Q1 estimates is relatively lower compared to what we saw in the comparable periods for the last few quarters.

As noted earlier, the current aggregate earnings total for the index approximates to an index 'EPS' of $215.20, down from $242.98 in mid-April, 2022.

Expectations for the Coming Periods

As mentioned earlier, 2023 aggregate earnings estimates on an ex-Energy basis are already down by more than -14% since mid-April 2022. Perhaps we see a bit more downward adjustments to estimates over the coming weeks, after more companies report quarterly results and provide guidance. But we have nevertheless already covered some ground in taking estimates to a fair or appropriate level.

This is particularly so if whatever economic downturn lies ahead proves to be more of the garden variety rather than the last two such events. Recency bias forces us to use the last two economic downturns, which were also among the nastiest in recent history, as our reference points. But we need to be cautious against that natural tendency as the economy's foundations at present remain unusually strong.

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