Bank of America raises S&P 500 EPS outlook on strong Q1 earnings

As the Q1 earnings season has proved to be better than feared, Bank of America strategists led by Ohsung Kwon hiked the 2023 outlook for what the S&P 500 could earn.

The new S&P 500 EPS estimate is $215, up from the prior $200, reflecting a 5% earnings beat in Q1. Kwon said that “strong” results once again demonstrated the ability of Corporate America to preserve margins.

“While a potential recession in 2H (house view) could put some pressure on the consensus 2H earnings recovery, we believe the downside risk will be mitigated given companies’ cost cuts. FX also flips to a tailwind in 2H, adding ~2ppt to EPS growth,” the strategist said in a client note.

BofA now projects that Q2 will be the trough on a quarterly basis (-8% YoY) and Q3 to mark the trough on a trailing 12-month basis (-4% peak-to-trough).

The broker expects S&P 500 to earn $235 in 2024, representing 9% growth YoY after an expected decline of 1% this year.

“Compared to 2022, our forecast implies +8% 2-yr growth, in line with expected nominal GDP growth (house view). Earnings typically recover stronger than they fall and we expect 2024 to be a better profit environment after companies’ focus on efficiency and productivity. A weaker USD adds ~1ppt to EPS growth in 2024.”

The Street sees S&P 500 2024 EPS at $246, which Kwon believes is “too optimistic.”

“With lots of pessimism around earnings, we don’t think 2024 EPS cuts are a reason to be bearish on equities,” Kwon concluded.

By Senad Karaahmetovic

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