A recent study of 357 CFOs and other c-suite executives of publically-traded companies has shown that finance professionals are often incorrect when it comes to predicting earnings.
The results of the survey, revised in February, reveal that the majority of managers believe there is a 78% chance they will report results within their guidance range, despite historical estimates indicating that this only occurs 31% of the time.
The study suggests that the reason why analyst earnings estimates are often incorrect, supported by Bloomberg data which highlights that earnings guidance is correct only around 30% of the time, is due to the managers’ overconfidence and miscalibrated forecasts.
The study’s co-author attributed this hubris to manager decisions.
Therefore, analysts’ predictions may not be entirely reliable. With Salesforce Inc earnings set to be announced on May 31 and Sherwin-Williams Co’s stock price target having been estimated by Jefferies, it will be interesting to see if these predictions come to fruition.
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