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%.

During the third quarter of 2011, combined EPS of the S&P constituents achieved a very strong 18.0% year-overyear growth rate. Earnings were at a record high as the economy continued its recovery. In aggregate, high net income is accompanied by higher levels of free cash flow. Companies have several options for using this excess cash flow – investing in their businesses, paying dividends to shareholders, making acquisitions, and/or repurchasing company stock.

It’s no secret that over the past several months commodity prices have been soaring and the economic uncertainty has retailers cautious about the second half of the year. Tracking recent earnings results in the consumer staple and discretionary sectors, we’ve probed even deeper to examine retailers Q2 and Back-To-School performance. This Product Insight also examines how retailers will do in the upcoming quarters.

Analyst ratings can be an important tool when making investment decisions. From October 9, 2007 through March 9, 2009, analyst Buy ratings fell by 63% as a proportion of total recommendations, while Sell ratings exploded 384%. Even at the midpoint of this period (May 15, 2008), the equity market (as measured by the DJIA) was roughly 50% higher than the bottom (12,992 vs. 6,547). However, Buys were down 43% and Sells were up 347%. For three months within this period, a disconnect between ratings trends, the DJIA, and XLF emerged. While Buy ratings dropped and Sell ratings increased, the overall market (as represented by DJIA and XLF) rose.