An earnings estimate is an analyst’s estimate for a company’s future quarterly or annual earnings per share (EPS). Future earnings estimates are arguably the most important input when attempting to value a firm. By placing estimates on the earnings of a firm for certain periods (quarterly, annually, etc.), analysts can then use cash flow analysis to approximate fair value for a company, which in turn will give a target share price.

Investors often rely on earnings estimates to analyze different stocks and decide whether to buy or sell them.

An earnings estimate is an analyst’s forecast for a public company’s future quarterly or annual earnings per share (EPS).
Investors rely heavily on earnings estimates to gauge a company’s performance and make investment decisions about it.
Most investors use a consensus earnings estimate, a forecast of a public company’s projected earnings based on the combined estimates of all equity analysts that cover the stock.
Whether a company meets, beats, or misses its earnings estimates can impact the price of the underlying stock, particularly in the short term.
Earnings surprises occur when a company misses the consensus estimate either by earning more than expected or less.

Analysts use forecasting models, management guidance, and fundamental information on the company to derive an EPS estimate. Market participants rely heavily on earnings estimates to gauge a company’s performance. So whether a company meets, beats, or misses its earnings estimates can impact the price of the underlying stock, particularly in the short term.

Analysts’ earnings estimates are often aggregated to create consensus estimates. These are used as a benchmark against which the company’s performance is evaluated. When you hear that a company has “missed estimates” or “beaten estimates,” it’s usually in reference to consensus estimates.

A few companies, such as Refinitiv and Zacks Investment Research, compile estimates and compute the average or consensus. Their forecasts can be found in stock quotations or financial publications such as The Wall Street Journal. Consensus numbers can also be found at a number of financial websites such as Yahoo! Finance, Bloomberg, Visible Alpha, Morningstar.com, and Google Finance.

Published consensus earnings estimates frequently are reflected in the stock price of a company. But sometimes they have an adverse effect. The shares of firms with high earnings estimates tend to falter as the companies’ performance doesn’t live up to the market’s expectations–they can easily disappoint. Conversely, firms with low earnings estimates tend to perform better than anticipated–because of the low bar: They’ve nowhere to go but up.

Earnings estimates are found by looking up individual stocks, Take, for example, Amazon (AMZN). Here is a roundup of its consensus earnings estimates, as of Jun. 7, 2021.

Amazon Earnings Per Share Estimates
Earnings Estimate
Current Qtr. (Jun 2021)
Next Qtr. (Sep 2021)
Current Year (2021)
Next Year (2022)
Avg. Estimate
12.27
12.97
55.88
72.3
Low Estimate
9.77
6.84
42.68
45.11
High Estimate
15.18
17.7
71.13
96.53
Year Ago EPS
10.3
12.37
41.83
55.88
No. of Analysts
36
36
46
46
Source: Yahoo! Finance

Earnings surprises occur when a company misses the consensus estimate either by earning more than expected or less. If the firm manages to beat the earnings estimate, it is called a positive or upside surprise. If the firm fails to reach the earnings estimate, it is called a negative surprise.

Here is how Amazon’s performance, vis-a-vis surprises, has worked out over 2020-2021 YTD:

Earnings History
6/29/2020
9/29/2020
12/30/2020
3/30/2021
EPS Est.
1.46
7.41
7.23
9.54
EPS Actual
10.3
12.37
14.09
15.79
Difference
8.84
4.96
6.86
6.25
Surprise %
605.50%
66.90%
94.90%
65.50%
Source: Yahoo! Finance

As with the earnings estimates themselves, earnings surprises affect stock prices. It’s been found that the stocks of firms with substantial positive earnings surprises tend to perform above average, and the stock prices with substantial negative earnings surprises perform below average.

As a result, companies often manage their earnings carefully to ensure that consensus estimates are not missed. Companies that consistently beat earnings estimates outperform the market. So some companies set expectations low by providing forward guidance that results in consensus estimates that are low relative to likely earnings. This results in the company consistently beating consensus estimates–and the earnings surprise becoming less and less surprising.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our
editorial policy.

Corporate Finance Institute. “What is an Earnings Estimate?” Accessed Jun. 7, 2021.

Leave a Reply

Your email address will not be published.