Earnings Surprise💥2nd QTR April 2023

Earnings season is one of the most anticipated points during the financial year for the market. It refers to the months when quarterly reports are released—generally in January, April, July, and October. And with the hype of the season comes a slew of analyst expectations, forecasts, and results that beat or miss those expert analyses.

KEY TAKEAWAYS

Publicly traded companies typically report earnings four times a year, on a quarterly basis.

These quarterly reports are highly anticipated and can cause investors to bid up the stock's price or else pummel it down depending on how the numbers shape up.

Analysts' consensus forecasts and a company's own guidance estimates are used to establish a benchmark with which to evaluate actual earnings results.

Investors should know what to expect, but also engage in their own analysis to find opportunities around earnings season.

Analysts' Forecasts

Analysts use forecasting models, guidance, and other fundamentals in order to come up with an earnings per share (EPS) estimate. The market uses these estimates to determine how a company will perform when the earnings are released.

For better or for worse, companies are judged by their ability to beat market expectations—all eyes are on whether companies "hit their numbers." In other words, they're judged on whether they manage to match Wall Street analysts' consensus estimates. Knowing the importance of those estimates can help investors manage through quarterly earnings results.

But keep in mind, these are estimates, so they may never be consistent from one analyst to another. That's because one analyst may use different metrics to come up with his estimates compared to others. So while your investment decisions shouldn't be weighted too heavily on whether companies meet, miss, or beat forecasts, it is worth keeping an eye on how their earnings figures stack up against quarterly estimates.

Embrace the Uncetanity of Probablity.