What causes revisions to earnings estimates?
Earnings are announced for quarters based on the firm’s fiscal year. As the fiscal year-end approaches, fiscal-year consensus estimates converge toward the actual fiscal-year earnings and there is less divergence. However, the focus does not abruptly shift to the next fiscal year as the previous one ends. Instead, stock prices probably, but not precisely, incorporate a rolling four-quarter earnings forecast perspective. Earnings forecasts are a moving target. Also, analysts change their forecasts in reaction to a changing firm, industry, and economic environment. New information drives analysts’ expectations and stock prices. Following the trend of changes in analysts’ earnings forecasts for a firm and determining the root causes of those changes should prove valuable. If you are unsure of why earnings forecasts are changing, it is not a bad idea to simply call the firm itself and ask for the investor relations department. They will tell you about all the information the company has re
