Have you ever read an analyst’s research report that said your company missed the consensus EPS estimate when you believed you had beaten the consensus estimate? Our partners at Financial Profiles share recommendations for monitoring and correcting consensus EPS estimates.
With multiple sources providing consensus analyst estimates – such as First Call, FactSet, S&P Capital IQ, Bloomberg, Zacks, etc. – it is not uncommon for there to be differences between the sources, and they can often be quite large. The likelihood of variances in consensus estimates becomes even greater if your company has extraordinary items in its earnings results, which the analysts may or may not be including in their forecasts. This can lead to a mixture of estimates in the consensus (some including extraordinary items and others excluding them) if the data provider has made an error when compiling the estimates, and create confusion for the company and its followers in terms of comparing the actual results to the Street expectations.
To avoid this confusion, here are some tips for monitoring and correcting any errors in consensus EPS estimates:
- Understand which sources of consensus estimates are used by your analysts and the media that cover your company. The media usually cite where they are pulling the consensus from, but many analysts don’t indicate which source they are using in their reports. You need to ask the analysts which source they use, so you understand which ones you need to monitor most closely.
- You are solely responsible for monitoring the consensus estimates. It’s unlikely that someone outside of your company is going to make you aware that one consensus estimate from a particular data source might be incorrectly calculated. Most analysts don’t monitor the consensus estimates and if for some reason their estimate has been input or used incorrectly by the data providers, they likely don’t know about it and won’t do anything to fix the problem.
- Contact the data provider with a clear explanation of where you believe an error has been made in compiling the consensus. It’s helpful if you provide any research report/analyst model that you are referencing, so the data provider can more easily verify that an error has been made.
- Don’t assume that because you’ve fixed an error in the consensus estimate once, it will stay fixed until you report earnings. If an analyst issues an updated report prior to the earnings announcement, the same error could occur again. So you need to continually monitor the consensus estimate all the way to your earnings release.
Financial Profiles is an investor relations and corporate communications firm that helps clients address issues that affect valuation and corporate reputation. Financial Profiles partners with clients to communicate growth and value creation strategies and build support among key constituents – investors, employees, customers, media and others. The team offers clients a breadth of expertise in investor relations, as well as transaction, corporate and crisis communications. Contact: Tony Rossi, CFA at (310) 622-8221 or trossi@finprofiles.com
The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal advice.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
