The Negative EPS And Dividend Revision Cycle Has Only Just Begun

Analysts have taken an axe to their 2020 earnings forecasts, with widespread profit recessions now in prospect.
Expectations for a robust EPS growth recovery this year have now been pushed into next year, more a function of base effects than optimism.
Given the severity of the pandemic aftershocks, however, this negative revision cycle could well have some way to go.
By Philip Lawlor, managing director, Global Markets Research
After some understandable hesitancy, analysts have taken an axe to their 2020 earnings forecasts, with widespread profit recessions now in prospect. Expectations for a robust EPS growth recovery this year - the consensus view only months ago - have now been pushed into next year, more a function of base effects than optimism.
Given the severity of the pandemic aftershocks, however, this negative revision cycle could well have some way to go.
Regional consensus EPS growth forecasts (%)

Source: FTSE Russell / Refinitiv. Data as of April 17, 2020.
As illustrated below, the year-long downtrend in 12-month forward EPS forecasts accelerated dramatically over the past month, wiping out many years of upgrades in most markets. The reversal for the Russell 2000 from prior peaks have been particularly severe.
Regional consensus 12-month-forwad EPS forecasts (rebased)

Source: FTSE Russell / Refinitiv. Data as of April 17, 2020.
The chart below puts the current revision cycle into historical perspective and illustrates why this downhill journey has likely only just begun: Though rolling six-month revisions to forward EPS estimates have only recently turned negative, and have already hit some of the lowest levels of the past 10 years, they still have some distance to go to match the magnitude of the declines during the 2008-2009 financial crisis.
Rolling six-month revisions to 12-month-forward EPS forecasts (% change)

Source: FTSE Russell / Refinitiv. Data as of April 17, 2020.
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