The quarterly earnings report is a quarterly filing made by public companies to report their performance. Earnings reports include items such as net income, earnings per share (EPS), earnings from continuing operations and net sales. These reports follow the end of each quarter. Most companies file in January, April, July, and October.
An earnings report is a ‘report card’ of sorts for public companies. It is through these reports that companies let shareholders know how well they have performed over the past time period. Most often the key metrics – net income and EPS – are weighed against the previous years’ numbers. By analyzing this comparison, investors can begin to gauge the financial health of the company and whether or not it deserves their investment. (from investopedia.com)
An earnings estimate is an analyst’s estimate for a company’s future quarterly or annual earnings. Future earnings estimates are arguably the most important input when attempting to value a firm. By placing estimates on the earnings of a firm for certain periods (quarterly, annually, etc.), analysts can then use cash flow analysis to approximate a fair value for a company, which in turn will give a target share price for publicly traded companies.
Analysts use forecasting models, management guidance and fundamental information on the company to derive an estimate. Market participants rely heavily on earnings estimates to gauge a company’s performance when announcing quarterly or annual results. The analysts’ earnings estimates are used as a benchmark to measure a firm’s performance about how experts expected it would do. (from investopedia.com)
When people speak about the “Consensus Estimate,” they typically mean the average (or mean) estimate for Earnings Per Share (EPS) for the current fiscal quarter, across all analysts who cover the company. This would typically be considered the “Street Estimate.” Specific data providers may adjust “Street Estimates” by applying certain rules, such as filtering outlying estimates, or only including estimates updated after the latest company guidance, to arrive at the values they distribute as “Consensus Estimates”.
Companies may issue “Earnings Guidance” either as part of their quarterly reporting process or in certain cases in response to events during a fiscal quarter, to set the expectations of analysts and investors as to their likely future earnings performance. If the guidance is in response to information not already generally available to the markets, this can set off a chain of analyst estimate revisions and corresponding price reaction.
Often, companies can issue guidance ahead of a disappointing quarterly report, and analysts will revise their estimates accordingly, leading the company to appear to have “made the consensus”, or even had a “positive earnings surprise”, when closer scrutiny would reveal the opposite. This is one reason prices do not always move in the direction of an Earnings Surprise – the information may have been already priced in based on guidance and revised estimates.
Earnings Surprises refer to quarterly Earnings Reports in which the reported actual EPS is different from the consensus estimate.
- Bullish Earnings Surprises happen when the actual is greater than the estimate.
- Bearish Earnings Surprises happen when the actual is lower than the estimate.
While it is useful to stay aware of Earnings Surprises for stocks you are following, a specific Earnings Surprise may or may not trigger a corresponding price move, often depending on whether the market has already reacted in response to prior company guidance, revised Earnings estimates, or a “whisper number” which differed from the consensus.
It is also useful to look at a company’s recent Earnings Surprise history. Chaikin’s backtesting has shown a positive correlation between companies that manage their Earnings to generally avoid negative surprises, and future 1-6 month relative stock performance: companies that manage surprises well tend to perform better. This is reflected in the Chaikin Power Gauge’s Earnings Surprise factor. You can also see recent quarterly surprises at a glance by clicking the “EPS” button on the Chart to toggle recent Earnings reports. Positive surprises will be in green, negative in red. Hover over the “EPS” icon for actual EPS, consensus estimate EPS at the time, and the difference. (These numbers will all use S&P which may differ from “Street EPS”). Notice the price activity following these events.
Estimate Revisions are changes to either individual analyst estimates, or (more commonly) to the Consensus (i.e. average or mean) estimate for a company’s earnings. These may be made in response to changing market conditions, specific company guidance, or actual reported earnings performance.
Chaikin has found the direction of consensus estimate revisions to be predictive of intermediate term price performance, which is reflected in the Estimate Trend factor of the Chaikin Power Gauge model.
Earnings season is the period of time during which a large number of publicly traded companies release their quarterly earning reports. In general, each earnings season begins one or two weeks after the last month of each quarter (December, March, June and September).(from investopedia.com)
Note. Though there is an Earnings Season, there are not, to our knowledge, any Earnings Playoffs.
With the caveat that trading around individual events, especially Earnings reports, greatly increases the variance of returns, and is not recommended as an overall investment strategy – you should be able to use various Chaikin analytics to help position you favorably ahead of Earnings reports. Any trading around Earnings events should be done with appropriate caution in the form of firm stop losses or options positions to limit risk.
The first way Chaikin can improve your returns is by helping you “play defense”. If you own stocks with Bearish Power Gauge Ratings and Bearish technicals (below a falling long-term trend, negative money flow and/or relative strength persistency), you should consider exiting these stocks ahead of Earnings as they are at the most risk of negative Earnings surprises and corresponding price drops – especially Bearish stocks which have rallied short-term to become overbought. Overbought Sell signals should be most heeded ahead of Earnings reports.
If you have a more aggressive trading style, you may consider actively shorting or buying Puts on these stocks, especially for those in Weak Industries, and in more neutral to bearish market conditions.
On the flip side, it is more difficult to convert Bullish metrics into short-term Earnings gains, as downside price gaps following negative surprises tend to outnumber upside price gaps following Bullish surprises. It can be done, but is a somewhat lower probability. That said, staying long Bullish stocks in Strong Industries, with bullish technicals remains a suggested strategy both for intermediate-term investing, and around short-term Earnings events.
We receive Earnings and Estimate data directly from S&P. This data is used to generate Earnings Alerts, Icons, and Hot Lists, and for display in the Chart, Screener, Power Gauge Reports, and Portfolio Health Check.
The Earnings data inside the Chaikin Power Gauge model factors is provided by Portfolio123 and is sourced from S&P Compustat. Factor values are used to generate the summary language in Chaikin Power Gauge reports.
The two sources are both industry-leading providers, however, they use different methodologies to normalize Earnings and Estimate information.
- Company Fundamental information is updated daily before market open. It includes current and historical EPS and Estimate data, as of the most recent quarterly report.
- Quarterly Earnings Reports are processed five times during each trading day, with final reports processed nightly. Intraday reports will be displayed as Earnings Alerts (in the Alerts Window of the Watchlist), but all other Earnings data only includes numbers received as of the previous nightly update.
- Consensus Estimate Revisions are processed nightly.
- Power Gauge Factors are updated after each trading day, before the next market open.
The Earnings Component represents 30% of the Chaikin Power Gauge Rating. It favors companies with steadily growing Earnings, managing surprises well, which are not overvalued on a projected basis. The factors are: Earnings Growth, Earnings Surprise, Earnings Trend, Projected P/E, and Earnings Consistency. The Experts component has an Estimate Trend factor which looks at the 13-week change in the Consensus Estimate for the upcoming fiscal year.
Why is the EPS (or Estimate) number in Chaikin Analytics different from CNBC (or Yahoo Finance, or…)
While this could just be due to different providers processing data at different rates, this is often due to S&P which takes Street EPS and Street Estimates and normalizes them to handle similar accounting items in a consistent fashion across stocks and across time. So while numbers may be different than the publicly reported ones, this does not make them wrong. They’ve just been normalized for more consistent analysis.
There are two possible reasons for differences between Power Gauge factors and other Earnings information: sourcing, and relative scaling.
1) Power Gauge factors are sourced from S&P Compustat. Other Earnings information in the system is sourced from S&P, which used a proprietary
2) Power Gauge factors represent a stock’s relative position in the Russell 3000 universe (or its Industry Group). So even if analysts have been raising estimates, it is possible that they have been raising estimates more on other stocks, causing the Estimate Trend factor to look less positive than expected.
For certain stocks (mainly very small stocks and international companies), S&P estimates a next report date. Also, sometimes a stock just doesn’t report on the expected date and hasn’t announced a new report date yet. In these cases, we will consider this an “Upcoming Earnings Report” for one week from the original report date.
Earnings Alerts shown in the Alerts Window of the Watchlist are generated from nightly Earnings Reports and Estimate Revisions, and intraday Earnings updates. Chaikin Analytics generates Bullish & Bearish Earnings Surprise Alerts and Estimate Revision Alerts, which will be displayed until the following trading day.
Hot Lists for Bullish and Bearish Earnings Surprises and Estimate Revisions are in the Chaikin Hot Lists/Earnings Hot Lists folder of the List Navigator. They are generated before each market open. There is also a curated “Upcoming Earnings Ideas” list, including selected stocks reporting Earnings in the next week (updated on Sundays).
Earnings Surprise Hot Lists don’t update intraday while Earning Surprise Alerts do. Also, Hot Lists apply a check to ensure stocks have had a valid Power Gauge Rating for a minimum period of time, which Alerts do not. Otherwise, Hot Lists contents should match Alerts.
- A grey EPS icon next to a stock in the Watchlist or Panel View indicates a stock reporting Earnings today or tomorrow.
- A green or red EPS icon indicates a stock that has reported a Bullish or Bearish Earnings Surprise within the past five trading days.
- A black EPS icon indicates a stock which has reported an EPS that matches the consensus estimate within the past five trading days.
A green or red EST icon indicates a stock with a Bullish or Bearish Earnings Estimate Alert currently active (although a recent or upcoming earnings report will take precedence over an estimate revision).
With the Earnings Date setting in the Screener, you can screen for stocks which have reported Today/Yesterday, or within the past week, or are reporting Tomorrow, or within the next week.
Click the EPS icon on the Chart to toggle “EPS” icons for recent quarterly Earnings reports. These will be colored according to the direction of Earnings surprise if any. Hover over the EPS icons for report detail.
You can also see historical Earnings information in tabular form in a stock’s Power Gauge Report.