by David Aurelio.
In Jan 2018 we published our top ten second quarter earnings surprise candidates based on StarMine predictive analytics models. Of these 18Q4 North American earnings surprise candidates picks, 67% were correct.
The StarMine SmartEstimate® is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate® differs significantly from the consensus (IBES Mean), the Predicted Surprise accurately predicts the direction of earnings surprises or further revisions 70% of the time. When significant Predicted Surprise for revenue is also present for the period, the accuracy improves to 78%.
Since 2011 Q4 we’ve posted our top 10 North American candidates for earnings beats and misses. The running total from 11Q4 through 18Q4 of S&P 500 companies beat earnings estimates is 64.2% and 19.1% for companies that missed. In total StarMine North American positive surprise candidates over that time have been correct 81.9% of the time and correctly called 64.8% of negative surprise candidates. This is a 63.5 percentage point (ppts) improvement over the S&P 500’s rates.
StarMine North American Positive Earnings Surprise History vs. S&P 500 Beat Rate:
StarMine North American Negative Earnings Surprise History vs. S&P 500 Miss Rate:
Using SmartEstimate® and Predicted Surprise data, we highlighted 10 companies with a high probability of reporting first quarter earnings surprises in the direction we called — five likely to beat the analysts’ consensus estimate and another five likely to fall short.
All of StarMine’s five 18Q4 North American positive earnings surprise candidates reported earnings above the mean at the time of the Jan. 15, 2019 report, which can be viewed here and one company was delisted. This was 30.7 ppts above the S&P 500’s 18Q4 earnings beat rate of 69.3%.
One of StarMine’s five 18Q4 North American negative earnings surprise candidates reported earnings below the mean at the time of the Jan. 14, 2019 report, which can be viewed here, and one candidate was acquired prior to reporting 18Q4 results. This was 1.9 ppts above the 23.1% of S&P 500 companies that reported 18Q4 earnings below expectations.
Interested in learning how you can use the StarMine SmartEstimate® and Predicted Surprise® to avoid earnings misses and find earnings beats? Learn more here.
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