Taking the Long View

Clint Morrison

› Director of Equity Research
› Feltl and Company, Minneapolis
› Securities brokerage and investment banking

››› I don’t view the moves by some companies to do away with guidance favorably, as it makes my job as an analyst more difficult. I still have to come up with estimates somehow, and without guidance they will be further off the mark. I view doing this as a refuge for companies that do not have a handle on their business, and therefore I would devalue them somewhat.

››› It’s riskier to follow a stock if no guidance is given, as you have to stick your neck out further. Therefore, you will probably not get as many analysts following the company. There will likely be an increased number of surprises and therefore more volatility. Everything points to the negative.

››› Companies have to report earnings four times a year, so you’re going to be evaluated at least that number of times whether you give guidance or not . . . . 

››› Larger companies have more predictability and consequently, if they have 20 analysts covering a company, investors can look to consensus analyst estimates for guidance. As such, guidance from a company is less valuable for large entities than for small companies. But overall, any management that does not give guidance is probably hiding a little bit.

Christian Schwab

› Senior Research Analyst 
› Craig-Hallum Capital Group, Minneapolis
› Institutional equity and investment banking

››› Quarterly earnings guidance is really a report card. Investors look for managements to execute to guidance. It creates credibility over time. By setting earnings targets and hitting them, it leads to higher valuations and increased visibility. Therein lies the difference between a good company and a good stock: A good stock is a good company that sets expectations and hits the target.

Jeff Evanson

› Senior Research Analyst
› Dougherty & Company LLC, Minneapolis
› Investment banking

››› One of the things I am always looking for is a way to add value, and if a company is not giving guidance, it gives me more room to add value for investors. I enjoy the exercise of trying to predict the future better than the next guy. 

››› When a company gives earnings guidance, the focus moves away from what the company reported to what they will report for the next quarter and how they are going to position themselves. I think you will find that volatility is actually more for companies that give guidance than for those that do not . . . . 

››› However, some portfolio managers view companies that do not give guidance as having less visibility. This can result in an impact to valuation in the short term, but the reality is in the long-term, you are much better off.  As an analyst, I have a higher opinion of a company that does not give guidance, as they are more focused on day-to-day execution rather than just satisfying the investor. . . .

››› Managements are sometimes fearful of going off guidance, but it’s like going off any drug—you’re going to have your cold-turkey period. It’s foolish for companies and boards to spend so much time on how to communicate with the Street. They should let the numbers speak for themselves.