Stocks react to a made up number (Herb Greenberg) and guidance is a myth

The quarter guidance game is a myth

CNBC Stock Blog
By Herb Greenberg
March 8, 2011

Shocker: Contrary to what you probably believe — at least contrary to my belief! — most companies do not give quarterly earnings guidance.

According to Factset, which did a run at my request:

• Only 96 of the S&P 500 give quarterly earnings guidance.
• 64 offer sales guidance.
• 50 give both quarterly sales and earnings guidance.

The story is much different with annual guidance, reflecting a growing trend of recent years, as companies have tried to pry themselves from such short-term orientation.

Further, according to Factset:

• A more robust 225 give annual earnings guidance.
• 144 give annual sales guidance.
• 116 give both annual sales and earnings guidance.

The grand finale: Only 30 give quarterly and annual earnings and sales guidance.

Moral of the story: The quarter guidance game is a myth. All of that fuss about missing, meeting and beating every quarter is mostly the result of analysts conjuring up their own numbers, resulting in a consensus that the companies than either miss, meet or beat.

Which means, in the end, stocks react to a made-up number.

Absurdity, squared.

Read More Herb Posts

Vornado and REIT-dom Continue to Defy Gravity

Vornado and REIT-dom Continue to Defy Gravity

 and You Can Put a Screw to Fundamentals

No Better Time to Buy REITS,

Nothing Will EVER Take Us Down

Vornado Realty Trust (VNO) reported earnings today

and Golly Sarge, they beat the street....by ONE PENNY!

Vornado Realty Trust stock price closed today (11/2/10) at $89.28 per share reflecting a $29.04 (48.2%) launch from 11/2/09. Year to date the stock is up 7.7%.

This stock price launch, surely reflects monstrous revenue and earnings growth year over year.

Well, not exactly.

Funds from Operations (FFO)

$249 million, or $1.22 per share (up 3.3%) versus $1.18 Q3 2009

Revenue

$707 million (up 5%) versus $671.2 million Q3 2009

Income after paying preferred dividends

$95.2 million, ($0.52 a share), versus $126.3 million, or $0.70 a share, Q3 2009

The consensus earnings estimate for FY 2010 is $5.28 per share (versus $4.46 FY 2009). The Wall Street experts predict an annual earnings increase of 18.4% on a stock that has launched 48.2% in the prior 12 months. The pundits earnings estimate for FY 2011 is $5.36 or a minuscule 1.5% earnings increase over their FY 2010 guesstimate.

REITS Love Bernanke's money printing press and zero interest rate policy. Are REITS the next dot-com blow up? Might commercial real estate be getting just a bit ahead of itself?

No grandpa, just like technology in 2000,

nothing bad could possible happen...



Under the surface, corporate earnings aren't quite as impressive as the headlines suggest

For the fourth quarter, expected earnings growth

drops from 32% to just 11%

if financials are excluded.

(U.S. Stock Market Built on Financials' Mark-to-Model)

By Kelly Evans
The Wall Street Journal
10/26/10
The third-quarter earnings season has helped the stock market find its footing again. But a solid foundation still is lacking.

About a third of S and P 500-stock index companies have turned in earnings, and the results once again look impressive. As of Friday, 83% of companies topped consensus earnings-per-share estimates, according to Thomson Reuters, which, if it holds, will be the highest proportion since 1994. Overall earnings are on track to rise 28% from a year ago, the fourth straight gain after nine prior quarters of decline.

While earnings activity peaks this week with results due from some 177 companies, only major misses from blue-chip companies at this point are likely to break the market's upward momentum. The S and P 500 has gained nearly 3% since Alcoa unofficially kicked off the season Oct. 7, extending its run since late August to an impressive 13.5%.

But that surge isn't really about this quarter's earnings. Recent economic data also have improved, and the Federal Reserve is expected to announce additional bond-buying measures at its Nov. 2-3 meeting to stimulate the U.S. economy. Bulls are further salivating over the fact that the S and P 500 last week formed a "golden cross," the 50-day moving average punched above the 200-day moving average, usually a bullish sign.

Skeptics, however, can be forgiven for not breaking out the champagne. The market's recent behavior looks eerily similar to its prior 15% run-up from February through April. That episode didn't end well. This one may not either.

Under the surface, corporate earnings aren't quite as impressive as the headlines suggest. Much of the overall growth has come from the financial sector, helped by its weak performance a year ago. Yet the foreclosure problems and concerns over future profitability recently have roiled those shares.

Exclude financials, and year-on-year earnings growth falls below 21%. The average "surprise" margin, by which earnings beat estimates, falls from 9% to 6.5%. Meanwhile, for the fourth quarter, expected earnings growth drops from 32% to just 11% if financials are excluded. Revenues for that period are seen up just 6.3%, excluding financials. That is hardly disastrous. But given growth is likely to slow further, it weakens the basis for a more lasting rally.

Thanks to Kelly Evans for a realistic delivery of data as it is a refreshing change!