Building Analyst Consensus Earnings Estimates and Derived Equity Signals
Summary
The article describes a method for estimating consensus net profit from analyst forecasts and using that estimate to build equity selection signals. It weights forecasts by report recency and by each analyst’s prior adjusted forecast error, giving greater influence to newer reports and analysts with better historical accuracy. When a company has issued an earnings preview or flash report, that company disclosure takes precedence over analyst estimates.
Derived measures include forward and rolling earnings yields, expected profit growth, PEG, changes in valuation, and valuation percentiles. The article reports backtest evidence across multiple stock universes: several measures had mean information coefficients above 0.06, while PEG and forward growth were around 0.05. It also proposes imputing missing estimates from prior industry profit-growth percentile patterns, reporting a modest improvement over conventional mean or median filling. These findings are historical backtest claims; the supplied text omits details needed to assess periods, implementation, costs, or out-of-sample robustness.
Key ideas
- Forecast weights reflect report age and the analyst’s prior adjusted forecast error.
- Company earnings previews or flash reports replace analyst consensus when available.
- Expected profit estimates support valuation, growth, PEG, valuation-change, and percentile signals.
- The article reports positive information coefficients across stock universes, but the supplied text lacks detailed backtest specifications.
- Missing estimates are filled using prior industry profit-growth percentile patterns.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.