The image is AI-generated
Earnings estimates for the next 12 months are rising.
And earnings estimates for 2025 and 2026 have been coming down.
The above statements sound like they’re in conflict. But they are actually two ways of communicating the same information. The differentiating factor: The passage of time.
Calendar year vs. NTM earnings estimates
We often hear analysts talk about earnings estimates based on calendar years. For example, coming into this year Wall Street strategists presented their estimates for 2025 earnings.
As time passes and information emerges, analysts will adjust those estimates. Historically, analysts tend to gradually revise down these calendar year estimates. And so far, this has been the case in 2025.
However, time can pass quickly. And with calendar year estimates, what was once a discussion about future earnings can quickly become a discussion about past earnings.
For example, at the beginning of the year, 2025 earnings represented the next-12 months’ (NTM) earnings. But it’s April now, which means any discussion of 2025 earnings involves an old quarter, and any discussion of NTM earnings involves a quarter in 2026.
Morgan Stanley’s Michael Wilson shared a nice side-by-side visualization of this somewhat confusing dynamic. The chart on the left shows the S&P 500’s NTM earnings per share (EPS). As time passes, you can see NTM EPS move up as it continuously incorporates the higher earnings expected in future periods.
The chart on the right shows EPS estimates for 2025 and 2026 — static periods in time. As time passes, you can see how analysts’ estimates have moved lower in recent months.
NTM earnings estimates look good despite calendar year estimates coming down. (Source: Morgan Stanley)
“NTM EPS estimates continue to advance on the back of stronger 2026 EPS growth,” Wilson observed. “However, NTM EPS may show signs of flattening in recent weeks as 2025/2026 estimates revise slightly lower (-1%).”
To be clear, both charts employ the same analysts’ estimates for earnings. They just differ in the way they reflect the effect of the passage of time.
And the two charts are currently telling us that the promise of earnings growth on a rolling future basis is more than offsetting deteriorating expectations for static periods.
This is important in the context of valuation metrics like the forward price-earnings (P/E) ratio. If earnings are expected to grow, then forward earnings (E) will rise as time passes. This leads to downward pressure on P/E ratios.
Be mindful in this uncertain environment
As we discussed last week, there are currently a lot of issues with analysts’ earnings estimates. Uncertainty is very high, and there’s evidence that the earnings estimates out there right now are stale.
But again, both visualizations are working off the same estimates. So if we believe the estimates for E is off, discussions about both NTM and calendar year estimates will similarly be off.
The bottom line: Be mindful about what you read and hear about earnings estimates. While it can be helpful to know what’s going on with revisions in certain calendar years, the information for a particular year will become less relevant as time passes. This is why it’s arguably more useful to look to NTM earnings because stock prices are heavily determined by expectations for the future.
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