Earnings Revision & Guidance Analysis

Overview

Track sell-side analyst estimate revisions, management guidance changes, and post-earnings price drift to generate investment signals. Earnings revisions are among the most persistent and well-documented alpha factors in equity markets, stocks with upward revisions tend to continue outperforming, and vice versa.

Core Concepts

1. Earnings Revision Momentum

The revision signal hierarchy (strongest to weakest):

Signal Type	Description	Typical Alpha (annualized)	Persistence
Earnings surprise (beat/miss)	Actual EPS vs consensus	3-8% post-event drift	60-90 days (PEAD)
Consensus revision breadth	% of analysts revising up vs down	4-6% long-short spread	3-6 months
Estimate magnitude change	Size of revision relative to prior estimate	3-5%	1-3 months
Guidance revision	Management guidance change vs prior	5-10% on event	Immediate + 30-60 day drift
Whisper number miss/beat	Actual vs buy-side whisper (not official consensus)	2-4%	1-2 weeks

2. Key Metrics

Earnings Surprise:

# Standardized Unexpected Earnings (SUE)
sue = (actual_eps - consensus_eps) / std_of_forecast_errors

# Interpretation
# SUE > +2: large positive surprise → strong PEAD signal
# SUE < -2: large negative surprise → strong negative PEAD
# |SUE| < 0.5: in-line with expectations → weak signal

Revision Breadth:

# Revision breadth ratio
breadth = (num_upgrades - num_downgrades) / total_analysts

# Interpretation
# breadth > +0.5: strong consensus upgrade momentum
# breadth < -0.5: strong consensus downgrade momentum
# |breadth| < 0.2: mixed / no clear direction

Estimate Dispersion:

# Analyst disagreement
dispersion = std_of_estimates / abs(mean_estimate)