Keeping a Pulse on Expectations: Screening for Earnings Revisions

by John Bajkowski

It’s good for a company to have reported strong historical growth, but a change in earnings guidance will likely have a significant and lasting impact on stock price.

The market is forward-looking. Stock prices are established through expectations and adjust as these expectations change or are proven wrong. Earnings per share (EPS) estimates involve the interaction of many company, industry, and economic forces. They embody an analyst’s opinion of factors such as sales growth, product demand, competitive industry environment, profit margins and cost controls. Earnings are a key variable used to value stocks, and slight changes in expectations for future earnings or the earnings growth rate can strongly impact the stock price.

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Services such as I/B/E/S, First Call, Multex, and Zacks provide consensus earnings estimates by tracking the estimates of thousands of investment analysts. Tracking these expectations and their changes is an important and rewarding strategy for stock investors.

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