Bad economic times have not diminished the desire of U.S. sell-side stock analysts for companies they cover to provide earnings guidance. No surprise here. Presumably as things head south in many industries analysts want more, not less, help from companies.
According to a survey of more than 100 sell-side analysts done by the Financial Relations Board and published in the magazine of the National Investor Relations Institute, 76% of analysts surveyed believe the stock market would punish the shares of companies that stop earnings guidance now. Also, 72% said they would be more concerned about the outlook of a company’s business if it suspended earnings guidance.
Guidance was controversial even before the fall of the global economy and the stock markets as it was supposed to bolster the culture of short termism.
Guidance also is the easy way out for analysts, narrowing their own earnings estimates and lowering the pressure on them to talk to company competitors, industry analysts and others to get a feel for near term results.
Still, there’s nothing inherently wrong with earnings guidance. Shareholders should want as much information about the companies they own, whether the information informs the short or long term. Simplistic as it may be, more data are better than less.
