Fire Your Stock Analyst!: Analyzing Stocks on Your Own

Earnings Surprise

An earnings surprise is the difference between analysts consensus forecasts and the company’s reported earnings. If the reported earnings come in below forecasts, it’s a negative surprise, and a positive surprise if earnings come in above forecasts.

Surprises are usually quantified in cents, as in, “a two-cent positive surprise.” Absent other overriding factors, a negative surprise of any amount drives the share price down, often sharply. Most companies routinely report a one or two-cent positive surprise, so that amount is not really a surprise and doesn’t move prices much.

Positive surprises of four or five cents—or more—usually do move the share price up, although not nearly as much as a negative surprise forces it down. ...