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Earnings First Cut Stocks

Tracking the Biggest Positive Earnings Estimate Revisions

An upward revision to the consensus estimate is a positive event, but it’s also important to track the percentage of analysts that have made revisions.

by Matt Markowski | August 2022

As the market digests second-quarter earnings reports, it becomes important to track earnings estimates. Stock prices are determined by the market’s expectations for each company’s growth. These expectations change frequently, along with stock prices.

A common practice for measuring expectations of a company is analyzing the consensus earnings estimates. Consensus estimates are the average of the estimated earnings per share made by analysts who are following specific companies. Changes in earnings expectations can have a significant impact on a stock’s price for a prolonged period.

Revisions to earnings estimates lead to price adjustments in the same way earnings surprises do. When earnings estimates are revised significantly upward (5% or more), stocks can realize even higher levels of outperformance. Stock prices of firms with downward revisions show below-average performance.

Revisions not only follow earnings surprises but are often precursors to new earnings surprises. As the calendar moves closer to the next reporting date, analysts tend to make fewer changes to their projections. A flurry of revisions near the reporting period can indicate that new information has prompted analysts to make adjustments. An upward revision to the consensus estimate is a positive event, but it’s also important to track the percentage of analysts that have made revisions. If a large percentage of the analysts tracking a firm have revised their estimates, you can have more confidence in the new consensus estimate.

There are four AAII screens that look for earnings revisions, two of which look for upward revisions in annual earnings estimates. This month, we are featuring one of them as a First Cut: our Estimate Revisions Top 30 Up screen. The screen identifies stocks with the largest positive revisions over the last month to their consensus earnings estimates for the current year. From this list, the 15 stocks with the largest percentage increases in their estimates are shown below.

Estimate Revisions Top 30 Up (Ranked by EPS Estimate Y0 % Revision)

Discussion

C from KS posted over 4 years ago:

According to the spreadsheet, the top three stocks each had ONE revision out of 8, 16 and 7 analysts, respectively. That ONE revision changed Amryt Pharma's 8-analyst average earnings expectation by almost 1,000 percent! That would require the revision to take that analyst expectation from round 2 cents to over $1 per share while the other analysts did nothing. Highly unlikely. It changed Patterson-UTI's 16-analyst avg by almost 200% without any of the other analysts reacting! However, since the result was still ZERO earnings, it hardly seems to be useful information. Shawcor jumped from 14 cents (roughly) to 22 cents on one revision. This means the revision must have changed that analyst expectation by 56 cents ... from maybe 14 to 70 cents?? While the other analysts did nothing. Somehow, I have to think there is something wrong with how this screen was produced. Or, maybe it needs a change to sift out suspicious outliers. I wonder what the performance of this screen would be if at least two revisions were required to make the list?


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