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Anyone notice how companies are consistently beating earnings estimates?

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Cali_Democrat Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 04:09 PM
Original message
Anyone notice how companies are consistently beating earnings estimates?
Has anyone else noticed this quarter how companies are consistently beating earnings estimates put out by "analysts"? It seems like almost every company is beating the "estimates" and then the market continues to move higher.

The real question is, why do these estimates suck so hard? Who the hell are these "analysts" putting out these shitty numbers that companies are beating every time?

These investment firms and hedge funds employ these "analysts" that give these crappy, low-ball estimates and it gives investment banks and hedge funds the incentive to push the market higher when companies beat them. Then eventually it all comes crashing down and the investment firms take their money and run...reload for the next equity bubble. Boom and bust.

Investment firms have more money than they know what to do with right now because of all the free money and liquidity provided by the Fed's near-zero interest rates. It's flooding the equity markets right now.

I have no doubt that the economy improving, but what's happening is that the stock market is moving at a much higher rate than it should be. Eventually the bubble will pop, it always does.

Our economy is now based on bubbles, whether they are real-estate, tech, or equities. No real savings and production anymore.
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hughee99 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 04:14 PM
Response to Original message
1. If you were an analyst...
Would you rather be too low or too high? Most people don't complain when a company makes more than expected, but they're pretty pissed when it makes less than expected, so I think they tend to error on the side of caution. Plus, I think that when companies know what the earnings estimates are, it gives them an opportunity to work their finances at quarter end to make sure they beat that estimate. If they're looking at being just under the estimates, the can try to defer some expenses to the next quarter.
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Cali_Democrat Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 04:28 PM
Response to Reply #1
2. That's true and it begs the question...what's the point of analysts if they're so inaccurate?
Why employ analysts if they can't even do their jobs correctly?

Similar to how the bond rating analysts rated CDO's AAA when they were essentially junk. Investment firms use them to bolster their bottom lines and nothing more.
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hughee99 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 07:36 PM
Response to Reply #2
6. It's the illusion of control
There seem to be 2 kinds of analysts, those that "publish" their findings, and those that actually advise the big boys where to put their money. Why would an investment firm want to give access to their "work product" to the general public while that info still has value? I'm sure they have a guy who puts up a number internally, and then another guy who tweaks that number for public consumption.
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BadgerKid Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 05:13 PM
Response to Original message
3. Corollary: Don't buy/sell based on analysts alone.
Having sat through a few conference calls, analysts can talk up or down the company. You don't know what analysts conflicts-of-interest are.
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customerserviceguy Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 05:29 PM
Response to Original message
4. There's what the analysts tell the public
And what they tell their friends. Making insider trading illegal has about as much effect as making drugs illegal.
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sendero Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 07:31 PM
Response to Original message
5. All of these estimates are lowballed..
.. so there is almost no chance of not meeting them.

What is important is earnings growth or loss. There have been some really good earnings reports regardless of the comparison to "expected", but there are plenty that still suck but the beat lowball numbers anyway.
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jtuck004 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Apr-20-10 08:48 PM
Response to Original message
7. If I were to close a bunch of my stores and lay off a bunch of people,

then the earnings estimate would be based on my new figures, not the old ones, and it would be much easier for me to look profitable. If people don't take the time to do the research and see what underlies all that, then it is easier to make them think that it's ok to keep buying.

One should remember that the Dow was at 14,000 3 years ago, today 11. Along with other markets, that's a lot of wealth gone out of and into people's pockets. There are still 27 million people looking for any, or more, work, and home foreclosures are increasing...

That's not to say people shouldn't invest for the long term, but I do wonder how long people can expect to keep making money for simply providing captial when the government is doing it at 0%? I am having trouble seeing where these investors add anything of value.
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