By JACK HOUGH
Studies have long linked upside earnings surprises with handsome future stock returns. The problem with today's upside surprises, however, is that most aren't especially surprising.
Over the past decade, an average of two-thirds of S&P 500 companies have beaten Wall Street's earnings-per-share forecasts each quarter. The last time fewer than half of index members reported upside "surprises" was 13 years ago -- before the global financial crisis or even the dotcom stock bubble.
Companies, it seems, have become adept at issuing beatable guidance and quickly lowering expectations when necessary. Analysts appear to be playing along. That makes it difficult for investors to tell which companies are truly doing better than expected and which are simply managing expectations well.
One way to separate true surprisers from pretenders is to look for those whose stock prices jump following their earnings reports. A study scheduled for publication the Financial Analysts Journal looks at data from 1971 to 2009 to determine what happens to these stocks after their initial jumps. On average, they beat the market by 5.7 percentage points over 60 days, according to the authors, Haigang Zhou from Cleveland State University and John Qi Zhu from Shanghai Jiao Tong University.
Below are listed a handful of companies that surpassed earnings forecasts during the current reporting season and experienced notable stock gains following their reports.
The Traveler's Companies
- EPS upside surprise: 32%
- Report date: April 19 (before market open)
- One-day price change (S&P 500 change): 3.7% (-0.6%)
- EPS upside surprise: 25%
- Report date: April 17 (after market close)
- One-day price change (S&P 500 change): 3.8% (-0.4%)
- EPS upside surprise: 18%
- Report date: April 18 (after market close)
- One-day price change (S&P 500 change): 3.4% (-.6%)
Switzerland's Noble (NE),