Earnings revisions don't tell the full story

Dear Reader, Over the past few weeks, you may have noticed that analysts have been revising down their expectations for corporate earnings. We've talked in the past about how important corporate earnings are to a company's overall health. So, when analysts begin to revise their expectations, many investors' ears go up. But with all this news about revisions, it's essential to keep in mind that revisions applied to earnings estimates don't actually tell you much about earnings. Revisions applied to earnings estimates simply tell you whether analysts felt they were too optimistic or too pessimistic about their prior forecast. That said, there are two more important observations worth noting. First, most companies usually report earnings that beat these estimates. Check out the chart below from Deutsche Bank's Binky Chadha.

Second — and more importantly — while some negative revisions are happening for certain quarters, expectations for future earnings continued to be for growth. There's certainly no guarantee that earnings growth will hold up as analysts are forecasting. But considering the massive tailwinds currently blowing in the economy, it's not surprising to see that these longer-term forecasts haven't come down in a more noticeable way.

Andrew Graham Editor, Silver Ridge Market Report

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