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Here's What to Expect from Q3 Earnings Season as per Goldman Sachs

Stock Markets Oct 10, 2022 07:02
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By Senad Karaahmetovic

Goldman Sachs' equity strategists believe the focus during upcoming Q3 earnings calls would be on the impact of a stronger dollar on profits.

Big banks are about to kick off the Q3 earnings season later this week with consensus calling for a 3% YoY EPS growth. However, excluding energy, EPS is expected to drop by 3%.

"We expect smaller positive surprises in 3Q compared with 1H 2022 and negative revisions to 4Q and 2023 consensus estimates," the strategists told clients in a note.

The strategists urged the bank's clients to focus on three risks to the upcoming Q3 earnings season and 2023 estimates:

  1. Headwinds to sales growth (dollar strength);
  2. Headwinds to margins with the focus on the health of consumer; and
  3. Taxes.

Despite several major negative updates, including from FedEx (NYSE:FDX), Micron (NASDAQ:MU), and AMD (NASDAQ:AMD), the strategists note that analysts have lowered 4Q 2022 EPS estimates by "just 1% YTD and still expect 7% year/year growth."

"Full year 2023 EPS estimates have been reduced by only 2% YTD and consensus forecasts annual EPS growth of 7% powered by 5% growth in revenues and 11 bp of margin expansion," the strategists added.

For this reason, the strategists expect to see more negative revisions to S&P 500 consensus 2023 EPS estimates.

"We forecast 2023 EPS of $234 (+3% growth) in our baseline, soft landing scenario. This is below the current bottom-up consensus forecast of $241 (+7% growth). In this scenario, 2023 sales growth will decelerate to 4% and margins will contract by 25 bp to 12.0%. The S&P 500 will end this year at 3600 (15x forward P/E) and 2023 at 4000 (16x P/E)."

In a hard landing scenario, Goldman Sachs sees earnings dropping to $200, which should translate to the S&P 500 at 3150.

Ultimately, the strategist urged the firm’s clients to focus on owning stocks that have high U.S. sales vs firms with high foreign sales.

Here's What to Expect from Q3 Earnings Season as per Goldman Sachs
 

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