Filling in the GAAPs in Individual Analysts’ Street Earnings Forecasts
47 Pages Posted: 27 Nov 2017 Last revised: 5 Jun 2020
Date Written: June 4, 2020
We find that individual analysts following the same firm and quarter forecast different underlying street performance metrics. Relative to analysts whose street forecast is based on generally accepted accounting principles (GAAP), analysts who forecast street earnings using a non-GAAP performance metric identify less persistent GAAP earnings and issue more accurate GAAP forecasts. However, when an individual analyst forecasts a non-GAAP performance metric and the majority of analysts following the same firm-quarter do not, the analyst’s forecast superiority is not observed in the street forecast measure, since the actual street earnings performance metric used as the benchmark likely differs from the performance metric forecasted by the analyst. We also find that dispersion in analysts’ street earnings forecasts is associated with the variation in the performance metric forecasted by the individual analysts following the firm. In summary, we find that individual analysts’ forecasts differ in terms of not only forecasted performance but also the underlying earnings performance metric forecasted, and our results suggest future research should control for these differences when making inferences about analysts’ forecast accuracy and dispersion.
Keywords: Analysts, Forecasts, Street vs. GAAP, Exclusions
JEL Classification: M4, M41
Suggested Citation: Suggested Citation