In the stock market world, the job of the analyst is to find uncovered gems and determine why a stock should be bought or sold. The press covers analyst for both comments and general view of their world, as an analyst they have reasonably regular meetings or conference calls with senior management to gauge what is going on. The other side of the story is all public companies do something – issue shares, sell debt, need opinions when they buying or selling subsidiaries and the like, a good analyst helps maintain this business for the other side of the company. Given the reality of did the analyst’s projection come true or not, in early May Ian Tam of Morningside decided to test the theory and his criteria was:

current year projected earnings per share growth (today’s median consensus estimate for the current year EPS compared against the prior fiscal year EPS)

next year’s projected earnings (today’s median consensus estimate for next year’s EPS vs the median consensus estimate for the current fiscal year EPS)

quarterly earnings momentum for the next quarter (the latest quarter’s EPS, adds the trailing 3 quarters of reported EPS and compares the figure to the trailing 4 quarters of reported EPS)

earnings variability (a measure of how consistent a company’s earnings are over the past 5 years- lower numbers are good)

market cap – the study was for larger companies

to qualify the company’s must have a positive current year median EPS estimate, positive trailing 4 quarters of EPS, and covered by at least 5 analysts.

Company                     Mkt Cap  Curt Yr   Next Yr  QEM   Earnings   Curt Yr Trailing Dvd

($Bil)         Exp GR   Exp GR  Nxt QT Var Score  Med Est  4Q EPS Yield

Chevron                     200.271     689.4        32.7       46.7        19.5         4.40         2.15        4.1

Netflix                           67.493    150.0         90.5         7.9        40.9          1.05        0.76          0

Pioneer Natl Res          28.799   922.1         121.6      84.0        47.9          1.95       0.62          0

Exxon Mobil               340.097     56.8           34.8       19.1        16.2          3.71       2.89         3.8

Applied Materials          45.169   48.2             6.9       19.3        23.0          2.61       2.17         1.0

Devon Energy                 19.945  1040           15.9       49.4        33.6          1.95       0.81         0.6

Chipoltle Mex Grill         13.675   435.9            52.4      32.9         40.7         8.24       4.05          0

Southern Copper             26.042    68.3             22.9      14.4         8.8           1.7         1.18        1.4

Visa                                   193.890    18.4            16.7         4.1         2.2          3.35      3.18    0.7

Cognizant Tech                  38.4         7.2            20.7          1.8         1.3          3.28     3.19   0.9

The other companies on the list  were Nvidia Corp, MasterCard, Aetna, Boeing and 3M Co.

Linking to dividend paying stocks, as an investor you depend on analyst’s reactions and expectations. Ideally the analyst should not be surprised because they have greater interaction with the senior management and if something was not as expected they would know or be looking for it. Large companies to generate large returns have to do something to big to keep growing and gaining market share or at least a near monopoly position. As a consumer, you want options, as an investor you are looking for monopoly.

There are more questions than answers, till the next time – to raising questions.