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)

# High dispersion (>15%): high uncertainty → larger potential surprise
# Low dispersion (<5%): tight consensus → smaller surprise but higher confidence

3. Post-Earnings Announcement Drift (PEAD)

The most robust anomaly in equity markets: prices continue to drift in the direction of the earnings surprise for 60-90 days after the announcement.

PEAD trading rules:

Surprise Quintile	Average 60-day Drift	Strategy
Q5 (top surprise)	+4 to +8%	Go long, hold 60-90 days
Q4	+1 to +3%	Mild long
Q3 (in-line)	~0%	No action
Q2	-1 to -3%	Mild short / underweight
Q1 (worst surprise)	-4 to -8%	Go short / avoid, hold 60-90 days

PEAD enhancement filters:

• Small/mid cap > large cap (less analyst coverage = slower price discovery)
• Low institutional ownership > high ownership (slower information diffusion)
• First surprise in a direction > consecutive same-direction surprises
• Revenue surprise + EPS surprise together > EPS surprise alone

4. Management Guidance Analysis

Guidance types:

Type	What It Covers	Signal Weight
Revenue guidance	Top-line outlook	High (harder to manipulate)
EPS guidance	Bottom-line outlook	Medium (can be managed via buybacks, tax rate)
Margin guidance	Profitability trajectory	High (reflects pricing power and cost control)
CapEx guidance	Investment intentions	Medium (forward-looking growth signal)
Segment guidance	Division-level detail	High (reveals where growth is coming from)

Guidance change signals:

# Guidance revision scoring
def score_guidance_change(current_guide, prior_guide, consensus):
    # Guide above consensus = positive signal
    if current_guide.midpoint > consensus * 1.02:
        guide_vs_consensus = "above"
    elif current_guide.midpoint < consensus * 0.98:
        guide_vs_consensus = "below"
    else:
        guide_vs_consensus = "inline"

    # Guide raised vs lowered vs maintained
    if prior_guide:
        if current_guide.midpoint > prior_guide.midpoint * 1.01:
            guide_revision = "raised"
        elif current_guide.midpoint < prior_guide.midpoint * 0.99:
            guide_revision = "lowered"
        else:
            guide_revision = "maintained"

    # Strongest signal: raised guidance above consensus
    # Weakest signal: lowered guidance below consensus

Guidance language analysis:

Language Pattern	Interpretation	Signal
"Raising full-year outlook"	Confidence in acceleration	Strong positive
"Reaffirming guidance"	No change, on-track	Mild positive (met expectations)
"Narrowing guidance range to upper half"	Soft raise without formal revision	Positive
"Updating guidance to reflect..."	Euphemism for guidance cut	Negative
"Withdrawing guidance"	High uncertainty, loss of visibility	Strong negative
"Providing preliminary results"	Pre-announcement, usually bad news	Negative (if below consensus)

5. Earnings Quality Indicators

Red flags in earnings reports:

1. Revenue growing but cash flow declining → accrual manipulation
2. Changing revenue recognition policy → inflating top line
3. Declining DSO (Days Sales Outstanding) story contradicted by rising AR → channel stuffing
4. Beating EPS via lower tax rate or share buyback, not operating improvement
5. Frequent "non-GAAP adjustments" that always add back expenses → questionable earnings quality
6. Inventory build outpacing revenue growth → future write-down risk

Quality scoring:

earnings_quality = {
    "fcf_conversion": fcf / net_income,           # >0.8 = good, <0.5 = poor
    "accrual_ratio": (net_income - ocf) / avg_assets,  # <5% = good, >10% = concern
    "revenue_cash_alignment": revenue_growth - ocf_growth,  # small gap = good
    "non_gaap_gap": non_gaap_eps - gaap_eps,      # large gap = red flag
    "buyback_eps_boost": eps_growth - net_income_growth,  # large = artificial
}

Earnings Calendar and Workflow

Pre-Earnings Analysis Checklist

1. Consensus snapshot: current EPS/revenue consensus, revision trend (30d/60d/90d)
2. Historical surprise pattern: has the company consistently beat/missed? By how much?
3. Guidance comparison: last quarter's guidance vs current consensus
4. Whisper number: buy-side expectations (often 1-3% above street consensus for serial beaters)
5. Options market pricing: implied move from at-the-money straddle
6. Sector peers already reported: read-through signals from competitors

Post-Earnings Analysis Checklist

1. Headline numbers: EPS surprise %, revenue surprise %
2. Quality of beat/miss: operating income-driven or one-time items?
3. Guidance change: raised / maintained / lowered / withdrawn
4. Call tone: management confidence level, Q&A defensiveness
5. Analyst reaction: immediate revision direction (first 24-48 hours)
6. Price/volume reaction: gap up/down, reversal, volume multiple vs average

Multi-Market Considerations

US Equities

• Earnings season: Jan/Apr/Jul/Oct (roughly 2-6 weeks after quarter-end)
• Data: SEC filings (10-Q within 40 days, 10-K within 60 days for large accelerated filers)
• Consensus: Bloomberg, Refinitiv, FactSet, Visible Alpha
• Via yfinance: ticker.earnings_dates, ticker.earnings_history

Hong Kong Equities

• Earnings season: Mar-Apr (annual), Aug-Sep (interim)
• Many HK-listed companies report semi-annually, not quarterly
• Dual-listed (A+H): compare A-share analyst estimates vs HK analyst estimates for arbitrage
• Via yfinance: yf.Ticker("0700.HK").financials

Key Differences

Dimension	US	HK
Reporting frequency	Quarterly	Semi-annual (most)
Guidance practice	Common	Rare
Analyst coverage	Deep (>20 for large caps)	Thinner (5-15 for large caps)
Pre-announcement	Regulated (Reg FD)	Less regulated
Earnings call	Standard	Less common for mid/small caps

Output Format

## Earnings Revision Analysis — [Ticker]

### Consensus Snapshot
- **Current FY EPS consensus**: $X.XX (N analysts)
- **30-day revision**: [up/down X%] — [N upgrades / N downgrades]
- **60-day revision**: [up/down X%]
- **Estimate dispersion**: [low/medium/high] (CV = X%)

### Last Earnings Event
- **Date**: YYYY-MM-DD | **Quarter**: FY25Q3
- **EPS**: $X.XX actual vs $X.XX consensus (surprise: +X%)
- **Revenue**: $X.XB actual vs $X.XB consensus (surprise: +X%)
- **Guidance**: [raised / maintained / lowered] — FY25 EPS guide: $X.XX-$X.XX
- **Price reaction**: [+X% on day, +X% over 5 days]

### Revision Momentum
- **Breadth**: [+0.6 → strong upgrade momentum]
- **Magnitude**: [average revision +X% over 30 days]
- **PEAD status**: [still within 60-day drift window / drift exhausted]

### Earnings Quality
- **FCF conversion**: X% [strong/adequate/weak]
- **Accrual ratio**: X% [clean/moderate/concern]
- **Non-GAAP gap**: $X.XX [small/large]

### Signal
- **Direction**: [bullish / neutral / bearish]
- **Catalyst**: [next earnings date: YYYY-MM-DD]
- **Confidence**: [high / medium / low]

Notes

• Earnings revision data requires real-time consensus feeds (Bloomberg, Refinitiv) for professional-grade signals; yfinance provides historical actuals but not real-time consensus
• PEAD is strongest in the first 30 days post-announcement; signal decays significantly after 60 days
• Guidance withdrawals are almost always negative — companies rarely withdraw guidance when business is going well
• Beware of "beat and lower" — beating current quarter but lowering forward guidance is often net negative
• This framework is for research purposes only and does not constitute investment advice