Screening For The Largest Upward Earnings Estimate Revisions

Since both positive and negative earnings surprises—that is, reported earnings above or below analyst expectations—can have lingering long-term effects, tracking revisions made by analysts is a rewarding investing strategy. AAII has created four screens that look for earnings estimate revisions: one that looks for upward revisions in annual earnings estimates; one that screens for companies with downward revisions; one that screens for companies that have had at least a 5% increase in annual earnings estimates over the last month; and, finally, one that screens for companies that have had at least a 5% decrease in annual earnings estimates over the last month. AAII’s Stock Investor Pro contains consensus earnings estimates from LSEG I/B/E/S and is used to perform our screens.

In this article I discuss the strategy that focuses on firms with at least a 5% increase in annual earnings estimates over the last month. AAII’s Estimate Revisions Up 5% screening model has an average annual gain since inception (1998) of 20.6%, versus 5.8% for the S&P 500 index over the same period.