EARNINGS FORECASTS - Connolly Report © December 1998 p 423
Under the title of "Selling Bull" in their November 9th edition, The Economist had an article about financial analysts. The commentary began, "Wall Street's financial analysts reckon that America's corporate earnings will rise by 19% next year. How seriously should investors take such predictions? ...the overall record suggests that almost anything a financial analyst says should be taken with a large pinch of salt.
Several studies have found that, a year ahead, analysts' profits forecasts will typically be 5-8% too high. They are then whittled down, so that, by the time results are announced, they are invariably too low, typically by around 2%. Conveniently, this ensures that, however poor results are in absolute terms, there will always be more headlines about better-than-expected profits than about disappointments." One must learn how "The Street" works to profit.