This blog has been discussing for a while the effect that earnings reports have on stock prices, and particularly the notion of a company beating its expected earnings. Last month we noted that 61 percent of companies beat their expected earnings, while another 18 percent match expectations. Only 21 percent fall short of their expected earnings, so it's mighty bad news when that happens.
Yesterday, the semiconductor products firm Semtech posted an earnings per share of 19 cents, just 2 cents off the consensus estimate. Wall Street responded by dropping Semtech's stock price by 6 percent. Another big loser was Jacobs Engineering Group, which was expected to report earnings of 68 cents per share, but actually reported only 63 cents per share. For that missing 5 cents, Jacobs lost 11.5 percent of its value.
Overall, for this quarter, the average stock that missed its earnings estimate lost 3.4 percent, while the average stock that beat estimates went up only 1.3 percent. The moral: People expect you to make your earnings estimate, and they'll punish you for missing them.
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