Earnings Revision

2. Key Metrics

Earnings Surprise:

# Standardized Unexpected Earnings (SUE)
sue = (actual_eps - consensus_eps) / std_of_forecast_errors

# Interpretation
# SUE > +2: large positive surprise → strong PEAD signal
# SUE < -2: large negative surprise → strong negative PEAD
# |SUE| < 0.5: in-line with expectations → weak signal

Revision Breadth:

# Revision breadth ratio
breadth = (num_upgrades - num_downgrades) / total_analysts

# Interpretation
# breadth > +0.5: strong consensus upgrade momentum
# breadth < -0.5: strong consensus downgrade momentum
# |breadth| < 0.2: mixed / no clear direction

Estimate Dispersion:

# Analyst disagreement
dispersion = std_of_estimates / abs(mean_estimate)

# High dispersion (>15%): high uncertainty → larger potential surprise
# Low dispersion (<5%): tight consensus → smaller surprise but higher confidence

3. Post-Earnings Announcement Drift (PEAD)

The most robust anomaly in equity markets: prices continue to drift in the direction of the earnings surprise for 60-90 days after the announcement.

PEAD trading rules:

PEAD enhancement filters:

• Small/mid cap > large cap (less analyst coverage = slower price discovery)
• Low institutional ownership > high ownership (slower information diffusion)
• First surprise in a direction > consecutive same-direction surprises
• Revenue surprise + EPS surprise together > EPS surprise alone

4. Management Guidance Analysis

Guidance types:

Guidance change signals:

# Guidance revision scoring
def score_guidance_change(current_guide, prior_guide, consensus):
    # Guide above consensus = positive signal
    if current_guide.midpoint > consensus * 1.02:
        guide_vs_consensus = "above"
    elif current_guide.midpoint < consensus * 0.98:
        guide_vs_consensus = "below"
    else:
        guide_vs_consensus = "inline"

    # Guide raised vs lowered vs maintained
    if prior_guide:
        if current_guide.midpoint > prior_guide.midpoint * 1.01:
            guide_revision = "raised"
        elif current_guide.midpoint < prior_guide.midpoint * 0.99:
            guide_revision = "lowered"
        else:
            guide_revision = "maintained"

    # Strongest signal: raised guidance above consensus
    # Weakest signal: lowered guidance below consensus

Guidance language analysis:

5. Earnings Quality Indicators

Red flags in earnings reports:

1. Revenue growing but cash flow declining → accrual manipulation
2. Changing revenue recognition policy → inflating top line
3. Declining DSO (Days Sales Outstanding) story contradicted by rising AR → channel stuffing
4. Beating EPS via lower tax rate or share buyback, not operating improvement
5. Frequent "non-GAAP adjustments" that always add back expenses → questionable earnings quality
6. Inventory build outpacing revenue growth → future write-down risk

Quality scoring:

earnings_quality = {
    "fcf_conversion": fcf / net_income,           # >0.8 = good, <0.5 = poor
    "accrual_ratio": (net_income - ocf) / avg_assets,  # <5% = good, >10% = concern
    "revenue_cash_alignment": revenue_growth - ocf_growth,  # small gap = good
    "non_gaap_gap": non_gaap_eps - gaap_eps,      # large gap = red flag
    "buyback_eps_boost": eps_growth - net_income_growth,  # large = artificial
}

Earnings Calendar and Workflow

Pre-Earnings Analysis Checklist

1. Consensus snapshot: current EPS/revenue consensus, revision trend (30d/60d/90d)
2. Historical surprise pattern: has the company consistently beat/missed? By how much?
3. Guidance comparison: last quarter's guidance vs current consensus
4. Whisper number: buy-side expectations (often 1-3% above street consensus for serial beaters)
5. Options market pricing: implied move from at-the-money straddle
6. Sector peers already reported: read-through signals from competitors

Post-Earnings Analysis Checklist

1. Headline numbers: EPS surprise %, revenue surprise %
2. Quality of beat/miss: operating income-driven or one-time items?
3. Guidance change: raised / maintained / lowered / withdrawn
4. Call tone: management confidence level, Q&A defensiveness
5. Analyst reaction: immediate revision direction (first 24-48 hours)
6. Price/volume reaction: gap up/down, reversal, volume multiple vs average

Multi-Market Considerations

US Equities

• Earnings season: Jan/Apr/Jul/Oct (roughly 2-6 weeks after quarter-end)
• Data: SEC filings (10-Q within 40 days, 10-K within 60 days for large accelerated filers)
• Consensus: Bloomberg, Refinitiv, FactSet, Visible Alpha
• Via yfinance: ticker.earnings_dates, ticker.earnings_history

Hong Kong Equities

• Earnings season: Mar-Apr (annual), Aug-Sep (interim)
• Many HK-listed companies report semi-annually, not quarterly
• Dual-listed (A+H): compare A-share analyst estimates vs HK analyst estimates for arbitrage
• Via yfinance: yf.Ticker("0700.HK").financials

Key Differences

Output Format

## Earnings Revision Analysis — [Ticker]

### Consensus Snapshot
- **Current FY EPS consensus**: $X.XX (N analysts)
- **30-day revision**: [up/down X%] — [N upgrades / N downgrades]
- **60-day revision**: [up/down X%]
- **Estimate dispersion**: [low/medium/high] (CV = X%)

### Last Earnings Event
- **Date**: YYYY-MM-DD | **Quarter**: FY25Q3
- **EPS**: $X.XX actual vs $X.XX consensus (surprise: +X%)
- **Revenue**: $X.XB actual vs $X.XB consensus (surprise: +X%)
- **Guidance**: [raised / maintained / lowered] — FY25 EPS guide: $X.XX-$X.XX
- **Price reaction**: [+X% on day, +X% over 5 days]

### Revision Momentum
- **Breadth**: [+0.6 → strong upgrade momentum]
- **Magnitude**: [average revision +X% over 30 days]
- **PEAD status**: [still within 60-day drift window / drift exhausted]

### Earnings Quality
- **FCF conversion**: X% [strong/adequate/weak]
- **Accrual ratio**: X% [clean/moderate/concern]
- **Non-GAAP gap**: $X.XX [small/large]

### Signal
- **Direction**: [bullish / neutral / bearish]
- **Catalyst**: [next earnings date: YYYY-MM-DD]
- **Confidence**: [high / medium / low]

Notes

• Earnings revision data requires real-time consensus feeds (Bloomberg, Refinitiv) for professional-grade signals; yfinance provides historical actuals but not real-time consensus
• PEAD is strongest in the first 30 days post-announcement; signal decays significantly after 60 days
• Guidance withdrawals are almost always negative — companies rarely withdraw guidance when business is going well
• Beware of "beat and lower" — beating current quarter but lowering forward guidance is often net negative
• This framework is for research purposes only and does not constitute investment advice