Three things Goldman Sachs wants to hear about earnings calls

Goldman Sachs Global HQ & World Financial Center Building, NYC

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Earnings risk will decrease for the rest of the year and management Goldman Sachs said the commentary will be especially important this earnings season given the current state of uncertainty.

Excluding the outlying domains of Energy (XLE) operational and financial performance (XLF) underperforms, Goldman predicts a modest 6% gain in Q1 S&P 500 (SP500) (NYSEARCA:SPY) income.

“Full-year EPS estimates have actually been revised 2% higher since the start of the year, and earnings growth is forecast to accelerate in the coming quarters,” strategists David Kostin and team wrote in a note. “Analysts appear reluctant to cut their forecasts sufficiently despite the high degree of uncertainty surrounding the economic outlook.”

“While our 2022 top-down EPS estimate is 3% below the bottom-up consensus ($221 vs $227), we believe the results from the Q1 earnings season do not. likely to produce enough clarity that analyst estimates converge fully with our forecast.”

“We encourage managers in their conference calls to address the three main sources of investor uncertainty that will impact earnings for the remainder of 2022,” Kostin said. .

They are:’

  1. Economic growth prospects and consumer demand. “The possibility of a recession has been a common theme in recent client discussions, and the yield curve implies a one-third probability of a recession in 2023. However, economists at we believe a recession is inevitable in part due to healthy households and corporate balance sheets… We will monitor management comments for broader signs of reduced consumer demand.”
  2. Inflation and profit rates. “Pricing strength will become increasingly important in the face of continued inflation and cost pressures. To gauge the sustainability of margins, we’ll be monitoring companies’ ability to stay within passing the increased costs on to the consumer.”
  3. Business exposure to geopolitical risks and investment plans to improve resilience. “The pandemic shutdown and Russia’s invasion of Ukraine have reinforced the need for companies to assess their global exposure. Some have taken actions to strengthen resilience. return to their supply chains… Furthermore, companies that have recently ceased doing business in Russia will likely need to carry a loss charge to account for the write-down of assets.”

Banks kick off earnings season this week. See what analysts expect.

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