I really enjoy your posts too, thanks! Stupid questions: can you explain 'wall street estimates'? I've heard it a million times, and I get that there are people at the company that make estimates and also analysts at financial firms (investment banks?) that supposedly take a stab at what the earnings per share will be, but-- who are they? What determines if somebody 'counts' as an analyst? How are estimates recorded so that they show up in yahoo finance? What are the motivations and abilities those analysts have to be right?
There are a number of providers that aggregate analysts forecasts (including financial information giants like Bloomberg, Factset and Thomson Reuters and small companies specialised in this business).
Sometimes the investor relations departments give an “official” consensus that they use as reference (at least some ex-US companies do so). For example, see the link to the Vara-provided consensus at https://www.investor.bayer.de/en/stock/analysts/consensus/
The whole business of beating consensus is a bit of a farce, as the forecasts are continously revised (sometimes the company will directly tell analysts that expectations have to come down). So it can happen that the results are 1% above the current forecast, but the current forecast is 10% below where it was one month ago.
For example, looking at the evolution of Q2 estimates for Tesla:
One year ago, the EPS forecast was -0.37.
Two months ago it was -2.19, last month -2.26.
Now it stands at -2.29, and it may be revised down now that Q1 results are available.
As we get closer to the end of the quarter the trend may continue. If, for example, right before the earnings announcement the consensus estimate is -3.25 and the actual EPS is -2.90 then it will be a strong beat...
That's like asking what counts as art. There are some major museums who hire curators, who in turn buy art. Similarly, there are some large financial companies that publish advice, who hire analysts. You "count" if people listen to you.
In theory there's a strict separation between trading and research departments. (People on the trading floor cannot even enter the area where research sits.) This doesn't mean that there isn't some conflict of interest, but the industry and regulators are aware of it and at least in principle there are ways to mitigate it.
Any conflict of interest could be seen as an illegal pump-and-dump scheme. It's a fuzzy line, but disclosing one's positions helps avoid the wrath of the SEC.
"What determines if somebody 'counts' as an analyst? How are estimates recorded so that they show up in yahoo finance?"
I'm no insider, but I feel like a lot of this comes down to Bloomberg terminal. That seems to be where lots of people get their aggregates of estimates, at least as a common starting point.
