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Fire Your Stock Analyst!: Analyzing Stocks on Your Own by Harry Domash

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Earnings Surprise

An earnings surprise is the difference between analysts consensus forecasts and the company’s reported earnings. If the reported earnings come in below forecasts, it’s a negative surprise, and a positive surprise if earnings come in above forecasts.

Surprises are usually quantified in cents, as in, “a two-cent positive surprise.” Absent other overriding factors, a negative surprise of any amount drives the share price down, often sharply. Most companies routinely report a one or two-cent positive surprise, so that amount is not really a surprise and doesn’t move prices much.

Positive surprises of four or five cents—or more—usually do move the share price up, although not nearly as much as a negative surprise forces it down. ...

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