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Sellside Analysts Ramping Up Earnings Estimates As Management Guidance Plunges

Tyler Durden's picture





 

One wonders who is right...

From BofA's Savita Subramanian:

Earnings estimate revision ratio continues to climb

The earnings revision ratio for the S&P 500 continued to increase in January, and the three-month ratio settled in at 1.7, above average optimism from the sell side. Sectors with the most positive ratios are Tech and Discretionary, and those with the most negative are Utilities and Telecom Services (p. 3). An above average and improving earnings revision ratio, which is what we have  seen for the last couple of months, generally benefits lower quality stocks (Table 1).

But the guidance ratio is heading south

Management and analysts appear to be parting ways. The three-month management guidance ratio (upward to downward guidance) fell to 0.9 this month from 1.4 in December. The ratio generally declines in January, but this month’s drop is more extreme. Tech and Financials have the most positive 3-month guidance ratio, and Telecom Services and Materials the most negative. The direction of guidance has historically predicted the subsequent month’s earnings revision ratio, indicating future downward revisions to earnings

And some more bad news:

Sales optimism continues to lag earnings optimism

Analysts have not been as optimistic on sales as they have been on earnings over the last three months, and the sales forecast revision ratio dropped down to 1.0 (roughly its long-term average). More worrisome to us, the top line / bottom line gap reached a new high, with sales optimism lagging earnings optimism by the largest margin on record. Telecom Services and Tech have the most positive sales forecast revision ratios, Utilities and Materials the most negative.

Visually this divergence looks as follows:

Next thing you know, sellside analysts will blame record insider selling on, you guessed it, snow.

 


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Wed, 02/02/2011 - 23:04 | Link to Comment haskelslocal
haskelslocal's picture

Hurry up and fire people and drain all those stock options already!

Wed, 02/02/2011 - 23:05 | Link to Comment PPMazzini
PPMazzini's picture

Seeing as sell side analysts rely almost entirely upon management guidance "nudge, nudge, wink, wink" this is quite surprising.  Maybe the analysts are now too stupid to even pick up on the subtle "guidance" offered by management in those one on one meetings where we know that no material non-public information is exchanged.

semperparatus.blogspot.com

Thu, 02/03/2011 - 00:41 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

I can't stand sell side analysts. Shills.

They more they underestimate and miss the better for the stock.

Wed, 02/02/2011 - 23:05 | Link to Comment Misean
Misean's picture

It's cyclone season.

Wed, 02/02/2011 - 23:09 | Link to Comment RudimentalDrummer
RudimentalDrummer's picture

I track rolling four-week up versus down revisions on a weekly basis.  Last week marked the 6th best four week period for net positive revisions since early 1987.  As we all know, sell side analysts are among the last to figure it out, followed closely by company managements.

Keep an eye out for analysts raising their long term growth rates (which are TOTALLY meaningless, btw..)  When they do that, they're extrapolating off the top, which gets you...a long way down to the agony of defeat.

Wed, 02/02/2011 - 23:23 | Link to Comment topcallingtroll
topcallingtroll's picture

Nice post!

Wed, 02/02/2011 - 23:13 | Link to Comment Common_Cents22
Common_Cents22's picture

Who needs earnings?

 

With hundreds of billions of new Bernank bucks the market has a life of its own.

 

kinda like in the dotcom days, there were commercials for stock symbols, never mind the money losing companies behind the symbol and the cash burn rates.   buy mofo!

Wed, 02/02/2011 - 23:18 | Link to Comment RudimentalDrummer
RudimentalDrummer's picture

Oh yeah...like "Thanks, Old Economy. We'll Take It From Here."  Famous last words from Robbie Stephens.

Wed, 02/02/2011 - 23:16 | Link to Comment the grateful un...
the grateful unemployed's picture

buy UNG BITCHEZ!!

Thu, 02/03/2011 - 00:20 | Link to Comment whatsinaname
whatsinaname's picture

UNG and the broader market are both like the day in the movie Groundhog Day. One never goes up (or just keeps going down) and the other just keeps going up - everyday I wake up and the status quo continues.

Thu, 02/03/2011 - 00:43 | Link to Comment Id fight Gandhi
Id fight Gandhi's picture

Like vxx. Last week people say wow, vix shot up 24% vxx only 8%. fuck that.

Some of these etfs are shit. Ung is one of them.

Wed, 02/02/2011 - 23:21 | Link to Comment justliknoah
justliknoah's picture

whose pants are on fire???

Wed, 02/02/2011 - 23:24 | Link to Comment apberusdisvet
apberusdisvet's picture

After you turn out the lights, don't forget to take the gold.

Wed, 02/02/2011 - 23:46 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Management and analysts parting ways.

Translation: Analysts cannot lie to the degree or bald-facedness required to keep thsi sham going.

Always found it fascinating, for many years now, how the "whisper" numbers and "real" numbers always came to within a hair's breadth of each other.

Knowing as I do from long experience that companies fudge their books, the co-incidence that anal-cysts also just happened to apply the same fudge factor was hilarious.

Liar's poker.

ORI

http://aadivaahan.wordpress.com/2010/06/16/time-faster-now/

Thu, 02/03/2011 - 00:02 | Link to Comment Johnny Lawrence
Johnny Lawrence's picture

When all the experts and forecasts agree, something else will happen.

- Bob Farrell, Rule #9

Thu, 02/03/2011 - 00:04 | Link to Comment Cursive
Cursive's picture

One wonders who is right...

Cue one of my favorite all time reader posts from ZH:

 

You have to respect the hustle.

Some hustle crack, some hustle Detroit Muni bonds. You don't have to respect the hustler but in the name of baby Jesus you must respect the hustle.

 

- bob_dabolina c. 12/15/10

https://s5-us2.ixquick-proxy.com/do/sp/highlight.pl?c=hf&rid=LBLMTQRKPPO...

 

Thu, 02/03/2011 - 09:21 | Link to Comment Saxxon
Saxxon's picture

+1

Thu, 02/03/2011 - 00:23 | Link to Comment chump666
chump666's picture

Egypt's is getting hot again plus snow, storms, turmoil everywhere else in the world

Time for our massively overdue correction, with China waking up in about 5days with sugar/oil/wheat/meat mega inflation.

Be a short selling market very soon...

fuck Bernanke, there is no way China will let him go all mental on QE3.

Thu, 02/03/2011 - 06:15 | Link to Comment sabra1
sabra1's picture

+++++++++++++++++++++!

Thu, 02/03/2011 - 00:35 | Link to Comment H.B.07
H.B.07's picture

"Analysts have not been as optimistic on sales as they have been on earnings over the last three months...."

 

Well that IS odd. The parting of ways, that is.  I always thought analysts' "estimates" were lurking in the liabilities columns of respectable corporations everywhere. Either way, a casual glace @ the unemployment rate will explain being bullish on earnings.....but actual sales....(?) Maybe not so much.

 

Which brings me to my primary point: Is that your pic I just saw on Twitter, Tyler Durden??  Bravo.

Thu, 02/03/2011 - 02:00 | Link to Comment oogs66
oogs66's picture

The only thing worse than sell side recommendations are ceo estimates!  show me more than 2 ceo's who called the top?  2 who called the bottom? Their only insight is how good/bad the quarter is and how many accounting game they are playing - either hide the kitty or kitchen sink.  Where were all the buybacks at the bottom???? nowhere!!! AIG, buying stock hand over fist at 55...selling to the gov't - amazingly - at 2!!  at i don't think they were the worst!

Thu, 02/03/2011 - 06:09 | Link to Comment walcott
walcott's picture


Washington D.C. is an affront for Tel Aviv. 

Israel will prove to be the most oppressive and murderous country

and people ever on this earth. Enough is never enough. 

Modus Operandi -

First they try to kill your spirit and identity. If that doesn't work

they just kill you. And they kill with impunity over and over again.

Do NOT follow this link or you will be banned from the site!