February 2008 Archives
So what is raised guidance anyway?
Let's start with guidance. Google tells me that guidance means "something that provides direction or advice as to a decision or course of action."
When people buy and sell stocks, they're doing it to make money. If you predict the direction of a stock's trading price and your prediction turns out to be right, chances are you can make some money. Wall Street analysts make a living predicting what's going to happen to a stock's trading price, and they make their predictions based on a number of factors. What a company's management -- for example their CEO, CFO, etc. -- indicates about future business is one factor they may consider when making a prediction or issuing a rating (buy, sell, hold, etc.).
If you ever have listened to a company's quarterly conference call (if you haven't then I suggest you find one and check it out -- very interesting stuff!) you may have heard the company's CEO or CFO provide earnings guidance.
For example, on a year-end analyst conference call the CEO may indicate that management expects the company to earn between $1.00 and $1.05 / share in the coming fiscal year. Analysts then may take that earnings expectation or guidance range and incorporate it into their stock price prediction model/algorithms. Chances are that the models crunch the numbers differently depending on how predictable management's estimates have been in the past.
Predictability and credibility are important concepts on Wall Street!
Long story short: although the analysts consider many factors when predicting a stock price, they now have made a prediction keeping in mind the company's guidance.
Suppose Q2 rolls around and Q1 was a better-than-expected, phenomenal quarter (maybe the company unexpectedly started selling Hannah Montana Krispy O's cereal?). Keeping in mind that new information, the company's CEO and management team have re-evaluated the earnings guidance figure. During the Q1 conference call, the CEO provides raised guidance of $1.15 to $1.20 / share (EPS) for the coming year. With this updated, raised guidance (higher compared to the original EPS of $1.00 to $1.05) the analysts may go back to their drawing boards to come up with a new stock price prediction.
Commonly when a company raises guidance, the stock price goes up because the company is doing better than people had expected. Raised guidance usually is a good thing for people who are "long" on a stock!
There you have it. I hope the stocks in your portfolio provide some raised guidance soon!
Let's start with guidance. Google tells me that guidance means "something that provides direction or advice as to a decision or course of action."
When people buy and sell stocks, they're doing it to make money. If you predict the direction of a stock's trading price and your prediction turns out to be right, chances are you can make some money. Wall Street analysts make a living predicting what's going to happen to a stock's trading price, and they make their predictions based on a number of factors. What a company's management -- for example their CEO, CFO, etc. -- indicates about future business is one factor they may consider when making a prediction or issuing a rating (buy, sell, hold, etc.).
If you ever have listened to a company's quarterly conference call (if you haven't then I suggest you find one and check it out -- very interesting stuff!) you may have heard the company's CEO or CFO provide earnings guidance.
For example, on a year-end analyst conference call the CEO may indicate that management expects the company to earn between $1.00 and $1.05 / share in the coming fiscal year. Analysts then may take that earnings expectation or guidance range and incorporate it into their stock price prediction model/algorithms. Chances are that the models crunch the numbers differently depending on how predictable management's estimates have been in the past.
Predictability and credibility are important concepts on Wall Street!
Long story short: although the analysts consider many factors when predicting a stock price, they now have made a prediction keeping in mind the company's guidance.
Suppose Q2 rolls around and Q1 was a better-than-expected, phenomenal quarter (maybe the company unexpectedly started selling Hannah Montana Krispy O's cereal?). Keeping in mind that new information, the company's CEO and management team have re-evaluated the earnings guidance figure. During the Q1 conference call, the CEO provides raised guidance of $1.15 to $1.20 / share (EPS) for the coming year. With this updated, raised guidance (higher compared to the original EPS of $1.00 to $1.05) the analysts may go back to their drawing boards to come up with a new stock price prediction.
Commonly when a company raises guidance, the stock price goes up because the company is doing better than people had expected. Raised guidance usually is a good thing for people who are "long" on a stock!
There you have it. I hope the stocks in your portfolio provide some raised guidance soon!
