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Strategies & Market Trends : Heinz Blasnik- Views You Can Use -- Ignore unavailable to you. Want to Upgrade?

To: zonder who wrote (1194)	5/13/2003 10:25:38 AM
From: Mike M2	Read Replies (2) \| Respond to of 4907

Zonder, some years back there was a well known academic study that found that companies that beat earnings estimates out performed the general market. ( don't ask me the name -I don't know but I have seen it referenced in my readings over the years). The study covered the pre-bubble years when analysts were more objective not quasi sales/marketing men for investment bankers. I recall in July 1996 IBM reported $2.51 for 2Q96 - beating the estimate by one penny. The reported was widely celebrated but few noticed that the estimate was for $3.25 at the beginning of the quarter. Today on CNBS many reports are simply compared to the estimate with no mention of the rate of change from year ago levels. When some tech companies were reporting big gains from their investments the media did not bother to differentiate between earnings from continuing operations and non recurring events- although Wall St would have the public believe that earings could grow faster than revenues in perpetuity. The effect of such tactics and accounting shenanigans was to mislead the public about the true earning power of corporations. Mike

To: zonder who wrote (1194)	5/13/2003 11:37:41 PM
From: EL KABONG!!!	Read Replies (1) \| Respond to of 4907

zonder, If deviation from actual results was on average only 10%, that is brilliant. I would hesitate to call that "overestimation". The 10% figure was only an average. Individual analysts, of course, had differing results. The point of the 10% "miss" factoid was not to be critical of analysts, but to make the reader aware that even the most respected opinions on any given company (or equity) are subject to interpretation and error. Actually, I have no idea if missing by 10% is actually "good" or "bad", so I'll defer to your opinion in that regard given that you were at one time in the analyst position. I don't understand how you think lower estimates "induce higher stock prices". One of the anomalies of the bubble years was that companies that met or exceeded their revenues/earnings expectations (as "foretold" by First Call or Zack's) soon found their stock in the enviable position of a near meteoric rise in price. Companies that missed revenues/earnings projections were punished with lower stock prices, even if the disappointment were as little as a penny. It didn't take too long for analysts and company executives to latch onto this equation, and investors soon found themselves surrounded by companies that were consistently meeting and/or exceeding expectations, which in turn exacerbated the "irrational exuberance" and "market mania" of the late '90s, where the price of a stock bore little resemblance to the underlying fundamentals. It's my opinion that analysts deliberately set revenues/earnings targets to the low side, so that companies could easily beat expectations, and the markets would see yet another round of increasing stock prices. And there was one online reservation/tour company that at one time was valued above the entire tourism industry of the US :-) Priceline??? KJC PS - When you were an analyst, what industry or sectors did you cover? Oh, and what is your native language? I'm presuming that you were an analyst covering European stocks??? Did you enjoy the work?