The importance of covering earnings — and ignoring analyst estimates

Business journalist Sara Silver writes for Columbia Journalism Review writes about the connection between Wall Street analysts and reporters covering company earnings.

Silver writes, “It’s an assembly line: One person listens to quarterly earnings calls with executives. Another checks news that could affect the company’s customers, suppliers, or competitors. One plugs earnings numbers into a spreadsheet. Only the head of the team makes calls—and the calls are narrow, predicting short-term earnings. These judgments are made within minutes. Earnings often beat expectations—mostly in alignment with companies’ guidance—which enables analysts to recommend that clients buy shares. That, in turn, sends stock prices up. For journalists, these recommendations are mostly useless.

“And yet few business reporters, even at elite news organizations, understand the implications of all this change. Market news sites still churn out stories on individual stocks based on sell-side research. When a company’s numbers beat Wall Street estimates (set within a range the company provided), that typically becomes a story’s lede. Michael Brush, a columnist for MarketWatch, observes a persistent conflict of interest: ‘There’s a huge incentive for a research analyst to be bullish on stocks their banks sell,’ he said. Still, he pays attention—he ignores the stock advice, but tunes in for the intel on emerging technology and drug trials.

“Journalists need to be numerate as well as literate. As corporations amass power and move their operations around the globe, the public cannot count on federal regulators to hold private entities to account, much less Wall Street analysts. The fact that American companies are required by law to report their finances in a press release every three months sends a clear message: the government expects reporters to help people understand the significance of the numbers.”