Quarterly earnings reports are the final play in a long, complicated game between companies, analysts and investors. Companies notify analysts of business developments that are shaping their prospects. The analysts then predict how these developments will translate to the companies' bottom line. Research firms such as First Call Corp. and Zacks Investment Research then poll the analysts to determine a general consensus. The results are published in newspaper stories, on the Internet, and in investment reports.
Investors wait with bated breath to find out whether their holdings met or missed estimates.
But these days, analysts said, perhaps they should readjust their expectations. Chuck Hill, research director at First Call, agreed that some companies guide analysts to artificially low estimates, hoping to benefit once they beat the published figure. If you're going to cover a company, you should be aware that some tend to gild the lily and others tend to be conservative. Still, there are a host of bona fide reasons that whisper numbers crop up alongside the published estimates, market watchers said. They generally don't change them unless something big crops up.