Wall Street analysts make it their mission to accurately anticipate a company's earnings, using forecasting models, management guidance and firm fundamentals to help them do so. But for all their efforts, they can't possibly see into a company's future -- and as a result, there's usually a discrepancy between their conjectures and the numbers born out by reality.
Sometimes, a stock's actual earnings vary widely from its consensus estimates, the aggregate of analyst predictions for the quarter, year, and following year -- and these so-called "earnings surprises" often continue to confound analysts time and time again.
Which is itself something of a surprise -- you'd think that analysts would learn from their previous mistakes, and adjust the earnings numbers upwards or downwards next time around. But analyst logic is often overridden by an irrational impulse to cling to their original estimates, in a psychological phenomenon known as "anchoring."
Studies have found that when people are asked to make quantitative estimates, they're strongly influenced by the item's previous value. Essentially, numbers have a curious tendency to get stuck in our heads, making it difficult for us to break away from them -- hence the reason a salesman begins the negotiation at a high "anchor" price and works his way down, fooling the consumer into believing that the lower price is a good value.
This anchoring effect sometimes causes analysts to under-react to new information announced by companies. If they're overconfident and attached to their most recent estimate, they may be reluctant to give as much weight as they should to the information in the current earnings announcement. Simply put, earnings surprises tend to be followed by more earnings surprises …
So it may be worth having a look at the stocks outperforming analyst expectations -- because if human psychology is any indication, there's a good chance that these companies will continue to outperform analyst estimates.
Here's a list of companies reporting earnings next week. All of these companies have a track record of beating analyst earnings estimates.
Earnings data sourced from AOL Money. The list has been sorted by average earnings surprise over the last year. (If you want to access a complete analysis of past earnings performance, click here.)
1. NCR (NYSE: NCR): Information Technology Services Industry. Over the last year, the company has outperformed analyst earnings estimates by an average of 81.61%. Earnings are scheduled to be released on 4/18. The stock has gained 23.94% over the last year.
2. Capital One Financial (NYSE: COF): Credit Services Industry. Over the last year, the company has outperformed analyst earnings estimates by an average of 67.02%. Earnings are scheduled to be released on 4/21. The stock has gained 21.47% over the last year.
3. Manpower (NYSE: MAN): Staffing & Outsourcing Services Industry. Over the last year, the company has outperformed analyst earnings estimates by an average of 66.57%. Earnings are scheduled to be released on 4/18. The stock has lost -0.18% over the last year.
4. Deckers Outdoor (Nasdaq: DECK): Apparel Footwear & Accessories Industry. Over the last year, the company has outperformed analyst earnings estimates by an average of 46.75%. Earnings are scheduled to be released on 4/20. The stock has gained 12.21% over the last year.
5. The Blackstone Group (NYSE: BX): Asset Management Industry. Over the last year, the company has outperformed analyst earnings estimates by an average of 36.7%. Earnings are scheduled to be released on 4/21. The stock has gained 33.12% over the last year.
6. Teradyne (NYSE: TER): Semiconductor Equipment & Materials Industry. Over the last year, the company has outperformed analyst earnings estimates by an average of 31.5%. Earnings are scheduled to be released on 4/18. The stock has gained 27.85% over the last year.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
