Avoiding the consensus-earnings trap

The promise of meeting or beating consensus estimates and the peril of missing them are profoundly overstated.

At most public companies, the pressure to meet or beat consensus-earnings estimates is strong. Do so consistently, many executives believe, and investors will reward the company over the longer term with a higher share price. Report earnings below consensus estimates - even by a small amount - and investors will penalise them with a lower share price, they worry. A striking example: in early 2005, eBay reported that it had missed the fourth-quarter 2004 consensus estimate by just one penny and saw its share price plunge 22 per cent ... READ MORE

Released by McKinsey & Company - January 2013