By Tom Burnett CFA
The latest FACTSET report, February 25, 2022, lists the consensus earnings estimates for the S/P 500 Index for 2022 and 2023. The forecast for 2022 is now $225, which would represent an increase of 8.7% over the 2021 figure of $208. Last October, the consensus target for 2022 was only $220. The latest projection for 2023 is now $248, an increase of 10.2% over the 2022 estimate. While the earnings forecasts continue to show positive trends, the corporate guidance figures have swung to a predominantly negative outlook. For example, the company guidance in the January 28 report for the first quarter of 2022 was 13 companies with negative guidance and 7 with positive expectations. The latest figures from the February 25 report show negative guidance from 62 companies compared with positive guidance from 26 companies. In other words, the net negative guidance spread has gone form six companies in late January to 36 in late February. Investors must watch these figures carefully as the swing to net negative guidance may begin to show up in reduced estimates for the Index as a whole. In addition, the price-earnings ratio remains historically high—with the Index at 4,380, the ratio on 2022 earnings, as forecast at $225, is 19.5x. The 5 and 10 year average ratios are 18.6x and 16.7x respectively. Investors must face on going inflation fears, a less accommodating Federal Reserve and a host of geopolitical challenges led by the Russian invasion of the Ukraine. Adding to these negative pressures, the first quarter company earnings guidance figures are another flashing caution light.
Tom Burnett CFA is Director of Research