Given the far greater amount of information that a company’s management team has about their operations than any outside analyst could have, it seems logical that company issued guidance should be more accurate than analyst estimates. Overall, this is the case – on an absolute basis, the average initial consensus differs from the actual earnings by 17.9%. Company issued guidance, on the other hand, differs from actual results by 9.8%, a significant improvement. When companies give earnings guidance, the analysts covering the company usually revise their estimates towards the guidance that was given. Guidance is not taken as a given, though, as analysts interpret the guidance and add their own analysis, and continue to revise their estimates. The final analyst consensus estimate, incorporating company issued guidance and information gained since the guidance announcement, is the most accurate, differing from actual results on average by 8.0%.
- Regions: United States
- Authors: Greg Harrison (View Blog | View Bio)
- Products: Thomson ONE Investment Management
- Keywords: earnings, guidance, S&P 500, valuation
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