In Europe, “earnings season” comes every six months. The research team at StarMine has been scrutinizing the earnings forecasts that were made using StarMine SmartEstimates (SE) and Predicted Surprise (PS) models. We identified three companies like to beat consensus estimates and five likely to miss when they reported results over the last six months. We can now report StarMine’s accuracy score – 88% with 7 out of 8 correct.
The only pick that went against us was AP Moller-Maersk A/S (although the stock is still up more than 50% since we published the story). The other seven picks were correct, giving us an 88% accuracy rate, above our historical average of 80% in the region. Let’s look at these companies.
Of the positive picks, Infineon Technologies continues to have a high score on the StarMine Analyst Revisions Model as analysts continue to take estimates higher. Safran earnings have stabilized after beating estimates handily and analysts are not as bullish about earnings as they have been in the past.
On the negative side, Aker Solutions fell after it reported an earning miss, and analysts have continued to take estimates lower. STMicroelectronics too has seen estimates lowered over the past six months as it restructures to manage costs. At Bwin party digital entertainment, analysts continue to cite poor results in the U.S. and have lowered estimates further. Puma continues to look expensive, and analysts continue to remain pessimistic. It looks like there remains a lot of short interest for Puma. Finally, FLSmidth continues to restructure and analysts continue to lower their estimates.
Positive Surprises
Negative Surprises
Explaining the scores
The Predicted Surprise, or PS, is calculated based on both the StarMine SE and the I/B/E/S consensus estimate. It is a measure of the percentage difference between the two. Our research shows that when the PS is plus or minus 2%, or more, this indicates that an earnings revision is highly likely.
Historically, the direction of those subsequent earnings revisions or surprises – linked to whether the PS is a positive or negative number – can be predicted accurately about 70% of the time. History also shows that being able to predict correctly the direction of future earnings revisions and earnings surprises gives investors a good chance of anticipating the company’s stock price movement.
As logic would suggest, a better-than-expected earnings report boosts the company’s share price, and vice versa. Indeed, that logic has become so self-evident that it doesn’t pay for an investor to wait to see what the earnings actually are; they have to anticipate what kind of earnings surprise might manifest itself and position accordingly before the company actually reports results.
SMARTESTIMATES AND THE PREDICTED SURPRISE %
SmartEstimates: StarMine Professional quantitatively analyzes the earnings estimate accuracy of sell-side analysts and uses this information to create proprietary SmartEstimates®. SmartEstimates help you better predict future earnings and analyst revisions with estimates that place more weight on recent forecasts by top-rated analysts.
Predicted Surprise %: The Predicted Surprise% is the percentage difference between the SmartEstimate and the I/B/E/S consensus estimate. When SmartEstimates diverge significantly from consensus, it serves as a leading indicator of the direction of future revisions and/or surprises. In aggregate, this indicator gets earnings surprises directionally correct 70% of the time.
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