Expert: Paul Henneman - 11/21/2005

Question
Hello:

I have often heard the term "guidance" used in relation to stocks. One particular phrase is "earning's guidance."  What does this word indicate or represent in relation to stocks or the earnings of a company?

I thank you for your reply.

Answer
Thank you for your question!
  Yes, the term 'guidance' is almost always used in relation to earnings. Essentially what it means is that an analyst has provided a future expected earnings figure for a company that he covers. Since this is not past earnings, but is a best guess at future earnings, the word 'guidance' is usually added to indicate this. The earnings guidance is usually related to a single analyst, but can be applied to a 'consensus estimate'. This is simply where all of the analysts who cover the same company are averaged to come up with one figure for the future earnings. These are important becuase since we can't know what a company's earnings in the future will be for sure, the best we have are these guidances issued from expert that spend their time closely analyzing publicly traded companies. Often the issuing of a strong or weak earnings forecast can dramatically affect stock price in the short term, because so many investors follow these earnings estimates.
  I hope this helps! Please do not hesitate to follow up with me if I can be of any additional service,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEInstitutional.com
www.VEReports.com