From Can-o-crap's cup of morning java,...surprising they are making more sense all the time,..
The myth of beating analysts’ expectations. Last night, CNBC’s Maria “Money Honey” Bartiromo was being interviewed by CNN mainly about the days activities. At one point they mentioned how earnings have been improving. “Absolutley. Earnings have beat expectations this quarter by an average of 6%.” Now, Maria is no slouch. She used to be a business writer and has certainly learned much at her current gig. However, we use her quote to illustrate the myth that beating analysts’ expectations is proof of improving earnings. In fact, a front page Wall Street Journal article the other week addressed this very issue.
The realitiy is, companies executives learned that “beating the Street” was good for the stock price. So, feed the Street a low-ball number and then a few weeks later “beat it!” These days, analysts love to run as central to the herd as possible. With investor lawsuits flying around, why should they risk being left out on a limb? In fact, the WSJ argues that Wall Street loves to take a companies guidance as gospel as a way to ensure they aren’t too far off the mark. Companies guide down here then later “surprise” the Street with figures up here. The point is, earnings upside surprises are more staged than ever in history. As for Maria, we would remind her that though expectations have been beaten, revenues and earnings are on average below last year’s figures.
THE LAST DROP: The chief enemy of creativity is “good taste”. – Pablo Picasso |
