The ultimate determinate of whether earnings season was a success or not is whether stocks went up or down in reaction to their reports. In that regards, this earnings season was a success since the average stock that reported gained 0.55% on its earnings reaction day. (For companies that report in the AM, we use that day’s change. For companies that report after the close, we use the next day’s change.)
As shown below, we’ve now seen positive reactions to earnings reports for two seasons in a row after seeing negative reactions in the two seasons prior.
Below is a breakdown of the average one-day change in reaction to earnings based on whether the stock beat or missed estimates. As shown, the average stock that beat consensus analyst earnings estimates gained 1.99% on its earnings reaction day, while the average stock that missed earnings estimates declined 2.19%. The reason the average decline for misses is greater than the average gain for beats is because a much higher percentage of companies beat estimates this season than missed.
Revenues mattered less to price reaction than earnings did this season. As shown, stocks that beat revenue estimates saw an average one-day gain of 1.48% on their earnings reaction days, while stocks that missed revenue estimates declined an average of just 0.72%.
Guidance mattered the most — as it always does. If a company raises or lowers guidance, the stock usually reacts violently to the upside or downside. This season, the average company that raised its forward guidance gained 4.57% on its earnings reaction day, while the average company that lowered its guidance declined 2.71%.
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