Sell-side analysts prefer earnings guidance

Apr 12, 2007

Trend away from issuing earnings guidance not appreciated by the sell side

CHICAGO -- Some 77 percent of sell side analysts prefer it when companies issue earnings guidance, according to a new survey conducted by financial communications firm Financial Relations Board (FRB).
 
The findings indicate that guidance is held in high regard by the sell side with only 15 percent saying that they would favor no guidance at all. Another revelation is the fact that 69 percent of analysts feel it is a 'red flag' when a company stops providing guidance.
 
The news comes after a series of high profile opponents of guidance - including the US Chamber of Commerce - have called for a review of best practice on guidance. They recently issued a statement saying they felt that all companies should stop providing quarterly earnings guidance. Berkshire Hathaway CEO Warren Buffett has also made his objections well known. Other well-known companies that have followed Buffett's example include Coca Cola and Gillette.
 
'Most companies should be informing guidance in a way that responds to the sell side analyst community as they have more influence on the valuation of their stock than say Warren Buffett,' says Tony Rossi, senior vice president of FRB.
 
It was also found that where a company does provide guidance, 83 percent of analysts like to see both revenue and earnings per share.
 
The sell side audience has so far been neglected in the debate on earnings guidance, but the findings that detail the views of 180 or so sell side analysts may well influence future developments.
 
By Clare Harrison