Our readers should have little doubt at this point about our view on the integrity of wall street and equity markets. In fact, we just spoke yesterday about all the little accounting games that companies play to "beat" earnings estimates in a post entitled "Mind The "GAAP" (Or How The Game Is Really 'Rigged')."
Well, CFOs can't bear the full burden of earnings management, they need complicit "independent" counterparts on wall street as well. A recent article in the Wall Street Journal points out how public companies use wall street analysts to manage quarterly earnings expectations and ultimately their stock prices. The article summarizes the quarterly dance played out between wall street analysts and investor relations teams to "manage" earnings down to a level that is ultimately "beatable" and thus produces a nice stock bounce on earnings day. Analysts, of course, are willing partners in the game because being a "team player" means better access to management teams, better attendance at bank-hosted conferences and the added benefit of very "accurate" forecasting for hedge fund clients that pay handsomely for their efforts. As the WSJ points out:
Analysts whose forecasts are far from what companies end up reporting risk losing credibility with clients and could get less access to company management. Those are reasons to listen if a company calls with a suggestion, according to analysts.
Roger Freeman, who left the stock-research industry in 2014 and now works at a technology startup, says: “If someone is trying to get your numbers down, they will highlight all the negatives and not positives, and you’ll come away thinking: ‘Gee, that sounds pretty bad,’ and sometimes take your numbers down.”
To prove the point, the WSJ reviewed over 6,000 earnings reports from 1Q13 through 1Q16 to see just how frequently companies manage to "beat" earnings estimates. "Shockingly" an overwhelming number of companies manage to report earnings that are exactly in-line or slightly above analyst expectations. But hey, maybe the analysts are just really good at modeling.
The WSJ went on to provide a couple of recent examples of "managed" earnings, with AT&T's 1Q16 numbers being the first, saying:
It is no secret that one of the most admirable qualities of the German public - in addition to its striking propensity for thrift in the aftermath of Weimar - is its stoic patience and pragmatism when dealing with adversity. However, over the past month, we grew increasingly confident that said patience would be tested, if only when it comes to matters of monetary trust vis-a-vis the local, neighborhood bank. First it was the news that Raiffeisen Gmund am Tegernsee, a German cooper...
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When one looks back over the past 10-years and compares the performance of Banks to the broad markets, banks look broken. We shared with members last week that since the highs in 2007, banks have under performed the S&P 500 by nearly 77%. Is this under performance about to end?
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Epizyme was founded in 2007, and trying to create drugs to treat patient's cancer by focusing on genetically-linked differences between normal and cancer cells. Cancer areas of focus include leukemia, Non-Hodgkin's lymphoma and breast cancer. One of the Epizme cofounders, H. Robert Horvitz, won the Nobel Prize in Medicine in 2002 for "discoveries concerning genetic regulation of organ development and programmed cell death."
Before discussing the drug targets of Epizyme, understanding epigenetics is crucial to comprehend the company's goals.
Genetic components are the DNA sequences that are 'inherited.' Some of these genes are stronger than others in their expression (e.g., eye color). Yet, some genes turn on or off due to external factors (environmental), and it is und...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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