Earnings Beat Forecast Using Event-Driven Score
Corporate events can be used as an indicator to forecast companies’ earnings. Events such M&A, new deals, new orders, partnerships, ESG, regulatory decisions, management and stakeholders’ changes, expansions to new markets or product categories, new products, price changes, new agreements, FDA decisions, financial reports related events and more reflect the companies’ ongoing operation during a certain period.
To demonstrate the predictive power of event on earnings we selected randomized 134 companies which beat the market expectation during the last earnings releases and we test their event-driven score for Jun-Sep 2018 period.
From 134 companies that beat the market expectation, 98 (73%) companies got an event-driven score above 0.5 which indicate a bullish trend. (The event-driven score is scaled between 0-1 where bellow 0.5 points to a bearish event-driven score based on events during the filtered period, above 0.5 points to bullish event-driven score). Among these companies that beat market expectations, we found events such new products, new JV and M&A activities, increase in demand, new pricing models, entering new markets and positive ESG events during the past quarter. A portion of these events have an impact on the same period and some will have an impact on the bottom line in the future.
|Delta Air Lines||DAL||0.76|
|Johnson & Johnson||JNJ||0.69|
|Cohen & Steers||CNS||0.20|
|Canadian Pacific Railway||CP||0.73|
|Bryn Mawr Bank||BMTC||0.80|
|Procter & Gamble||PG||0.54|
|Canadian National Railway||CNI||0.88|
|Public Service Enterprise||PEG||0.80|
|Genesee & Wyoming||GWR||0.80|
|Jones Lang LaSalle||JLL||0.75|
|Advance Auto Parts||AAP||0.65|
Our model predicts 73% of the companies that beat the market expectation in the earnings category, the remain 27%, can be explained by companies that had substantial events that position the companies’ event-driven score below 0.5 ( a bearish territory) therefore, misses on the prediction. This is a type 2 error which spots companies that should not beat the market expectations, and in reality, beat the market expectations.
These events include ESG category, investor misleading, lawsuits, reduction in earnings guidance etc… the common for these events is that all are involving processes and results which are unknown, therefore, have an impact on the long-term rather than the short-term such quarter results.
To conclude, each quarter has its unique events as well as dragged events from previous ones, however, data shows that events can predict which companies will outperform the market expectations and vise verse on relatively high accuracy.
Capture alpha using event-driven scoring presented on a visual analytics system
Using big data and NLP technologies to capture alpha by collecting, structure and reveal events from news articles, press releases, and financial social media. Our data is presenting on visually compelling, interactive dashboards on your PC and mobile.
Using a hybrid model to provide high accuracy of data classification, context, and sources to ensure maximum value for our clients. Generating events scoring based on novelty, the position of the event, (header or news body), the event scoring index and the repetition of the event in the media.
Financial reports related events, M&A, new deals, partnerships, ESG, regulatory decisions, management change, expansions, new products, FDA decisions, macroeconomics and more…..
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