Do Analysts Cash Flow Forecasts Improve The Accuracy Of Their Target Prices PDF Download
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| Author | : Noor Hashim |
| Publisher | : |
| Total Pages | : 49 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
Download Do Analysts' Cash Flow Forecasts Improve the Accuracy of Their Target Prices? Book in PDF, ePub and Kindle
Current evidence on the sophistication of analysts' cash flow forecasts is ambiguous. For example, Call et al. (2009) show that issuing cash flow forecasts has important benefits for analysts' earnings forecasts, while Givoly et al. (2009) question the validity of this result, arguing that analysts' cash flow forecasts are simple extrapolations of their earnings forecasts and provide limited incremental information. More recently, Mohanram (2014) and Radhakrishnan and Wu (2014) show that the increasing incidence of cash flow forecasts has helped mitigate accruals mispricing. We contribute to the debate on the usefulness of analysts' cash flow forecasts and their effect on capital market outcomes by examining whether cash flow forecasts have incremental benefits over earnings for analysts' valuation outcomes. We find that analysts who are better at forecasting cash flows are better at forecasting target prices, even after controlling for the quality of their earnings forecasts. Our study provides confirmatory evidence on the sophistication of analysts' cash flow forecasts.
| Author | : Noor Hashim |
| Publisher | : |
| Total Pages | : |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
Download Three Essays on Analyst Target Prices Book in PDF, ePub and Kindle
This thesis presents three essays on analyst target prices. The essays contribute to the major debate on the value of analyst target prices in the capital market by addressing the following three questions: Does a bull-bear valuation analysis increase the accuracy of analysts' target prices? Does analyst ranking affect how informative target prices are to institutional investors? And, do analysts use their cash flow forecasts when setting target prices?In the first essay, I explore whether conducting a bull-bear analysis (BBA) increases target price accuracy. A bull-bear analysis is a risk assessment tool that analysts use to enhance the credibility of their valuations and limit target price uncertainty. Using propensity score matching to control for selection bias, combined with a difference-in-differences estimation to allow for company- and analyst-specific effects, I estimate the effect of supplementing target prices with a BBA on the target price accuracy of US stocks during 2008-2009. The results suggest that target prices are more accurate when analysts supplement them with a BBA. The findings contribute to the literature exploring the determinants of analyst ability to produce accurate target prices. The second essay examines whether analyst ranking status affects institutional investors' decisions to incorporate target price information into their investment strategies. Evidence shows that market participants value analyst target prices. There is limited evidence, however, on how target price revisions influence the decisions of sophisticated investors. The examination of this study is relevant for the economic question: Does analyst reputation mitigate or exacerbate the conflicts of interest that analysts face? Consistent with institutional investor trades being based on superior information, I observe differences in the information content of target price revisions by star and non-star analysts. Additionally, a duration analysis shows that the quality of analyst target price revisions significantly increases the hazard of analysts losing their star ranking. In the final essay, I examine whether analysts' decisions to issue cash flow forecasts depend endogenously on their decision to use these forecasts to set target prices. Using an endogenous switching regression model, with analyst report regimes of disclosure and non-disclosure of cash flow forecasts, I find that cash flow revisions are more important than earnings revisions in explaining the magnitude of target price revisions in the cash flow disclosure regime. Cash flow forecasts influence and are influenced by analyst valuation choices. Additional analysis shows that cash flow-based pseudo-target prices play a greater role in explaining target price implied returns than do earnings-based pseudo-target prices. These findings provide insights into analysts' valuation decision processes and their sophisticated valuation input choices.
| Author | : Dan Givoly |
| Publisher | : |
| Total Pages | : 49 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Download The Quality of Analysts' Cash Flow Forecasts Book in PDF, ePub and Kindle
This paper examines properties of analysts' cash flow forecasts and compares these properties with those exhibited by analysts' earnings forecasts. Our results indicate that analysts' cash flow forecasts are of a considerable lower quality than their earnings forecasts. They are less accurate and improve at a slower rate during the forecast period. Further, analysts' cash flow forecasts appear to be, in essence, a naiuml;ve extension of their earnings forecasts and provide no incremental information on expected changes in firms' working capital. Consistent with their low quality and in contrast to their earnings forecasts, analysts' forecasts of cash flows are of limited information content and are only weakly associated with stock price movements. Finally, a measure of expected accruals based on the difference between analysts' earnings and cash flow forecasts has a very low power in detecting earnings management.
| Author | : Quoc Tuan Quoc Ho |
| Publisher | : |
| Total Pages | : |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
Download Three Essays on Financial Analysts' Stock Price Forecasts Book in PDF, ePub and Kindle
In this thesis, I study three aspects of sell-side analysts' stock price forecasts, henceforth target prices: analyst teams' target price forecast characteristics, analysts' use of information to revise target prices, and determinants of target price disagreement between analysts. The first essay studies the target price forecast performance of team analysts in the UK and finds that teams issue timelier but not less accurate target prices. Unlike evidence from previous studies, my findings suggest that analyst teamwork may improve forecast timeliness without sacrificing forecast accuracy. However, market reactions to team target price revisions are not significantly different from those to individual analyst target price revisions, suggesting that although target prices issued by analyst teams are timelier and not less accurate than those of individual analysts, investors do not consider analyst team target prices more informative. I conjecture that analysts may work in teams to meet the demand to cover more companies while maintaining the quality of research by individual team members rather than to issue more informative reports. In the second essay, I study how analysts revise their target prices in response to new information implicit in recent market returns, stock excess returns and other analysts' target price revisions. The results suggest that analysts' target price revisions are significantly influenced by market returns, stock excess return and other analysts' target price revisions. I also find that the correlation between target price revisions and stock excess returns is significantly higher when the news implicit in these returns is bad rather than good. I conjecture that analysts discover more bad news from the information in stock excess returns because firms tend to withhold bad news, disclosing it only when it becomes inevitable, while they disclose good news early. Using a new measure of bad to good news concentration, I show that the asymmetric responsiveness of target price revisions to positive and negative stock excess returns is significant for firms with the highest concentration of bad news but is insignificant for firms with the lowest concentration of bad news. I argue that firms with the highest concentration of bad news are more likely to withhold and accumulate bad news. The findings, therefore, support my hypothesis that analysts discover more bad news than good news from stock returns because firms tend to withhold bad news, disclosing it only when it is inevitable. The third essay examines the determinants of analyst target price disagreement. I find that while disagreement in short-term earnings and in long-term earnings growth forecasts are significant determinants, recent 12-month idiosyncratic return volatility has the strongest explanatory power for target price disagreement. The findings suggest that target price disagreement is driven not only by analyst disagreement about short-term earnings and long-term earnings growth, but also by differences in analysts' opinions about the impact of recent firm-specific events on value drivers beyond short-term future earnings and long-term growth, which are eventually reflected in past idiosyncratic return volatility.
| Author | : Andreas Markou |
| Publisher | : |
| Total Pages | : 68 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download Are Analyst Free Cash Flow Forecasts Valuable? Evidence from Target Price Changes Book in PDF, ePub and Kindle
We examine the value of analyst Free Cash Flow (FCF) forecasts in the context of target price changes. We argue that investors can use FCF forecasts to distinguish between FCF based target price changes and less informative target price changes primarily driven by discount rate, long term growth rate and unpublished FCF forecast changes (NON FCF changes). We show empirically that FCF based target price changes have on average 27-54% stronger initial price reactions than NON FCF based target price changes. We find that this differential price reaction is not driven by analyst reputational concerns but by analysts signalling their conviction on the company's future fundamentals. Specifically, the analyst decision to issue a FCF based target price is related to momentum, to company earnings exceeding consensus forecast and to the company recently having announced earnings results. Further, we find that a long-short portfolio strategy that trades only on FCF based target price changes earns higher average abnormal returns of 87 basis points for the three day initial event period, compared to a portfolio that trades on all target price changes.
| Author | : Daniel Alan Street |
| Publisher | : |
| Total Pages | : 104 |
| Release | : 2020 |
| Genre | : Accounting |
| ISBN | : |
Download An Examination of Analysts' Target Price Forecasts After Accounting Misstatements Book in PDF, ePub and Kindle
I investigate the magnitude, accuracy, and informativeness of analysts' target price forecast revisions after material negative accounting misstatements. Although prior researchers find that analysts' earnings forecasts decline after misstatements, the effects of misstatements upon analysts' target price forecasts have not yet been investigated. Relative to analysts' target price forecasts for control firms, I find that analysts decrease their target price forecasts more sharply for misstating firms. Although analysts' target price forecast revisions are somewhat less accurate for misstating firms, I find that analysts' target price forecast revisions for misstating firms remain informative to the stock market. Several misstatement and target price forecast characteristics (misstated account, misstatement intention, SEC investigation, and CEO turnover after misstatement) affect the average magnitude, accuracy, and informativeness of analysts' target price forecast revisions. These findings inform investors regarding the extent to which they may effectively rely upon analysts' target price forecasts after material negative accounting misstatements and contribute to our knowledge of the value relevance of historical accounting and future earnings expectations for sell-side analysts.
| Author | : Stefano Bonini |
| Publisher | : |
| Total Pages | : 43 |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
Download Subjective Valuation and Target Price Accuracy Book in PDF, ePub and Kindle
How do analysts develop their forecasts? In this paper, we analyze how sell-side analysts estimate target prices and show that they consistently employ subjective adjustments to baseline models. For a panel of analyst reports, we show that target price forecasts that deviate significantly from simple multiple-based pseudo-target prices are (ex-post) more accurate. By controlling for various stock and broker characteristics, we also demonstrate that our results are not driven by the degree of sophistication of the valuation models. Furthermore, we show that investors know about this increased informativeness of forecasts as the abnormal market return around target price revisions is significantly higher if analysts deviate from simple pseudo-target prices when issuing their forecasts.
| Author | : Russell James Lundholm |
| Publisher | : McGraw-Hill/Irwin |
| Total Pages | : 0 |
| Release | : 2007 |
| Genre | : Business enterprises |
| ISBN | : 9780073309699 |
Download Equity Valuation and Analysis with EVal Book in PDF, ePub and Kindle
While focusing on the underlying theories of financial analysis and valuation, this work aims to answer the question, "What is this company really worth?". It takes the view that sound forecasts of financial statements are the key input to a good valuation, and that other aspects of the valuation process are mechanical.
| Author | : Aswath Damodaran |
| Publisher | : Now Publishers Inc |
| Total Pages | : 102 |
| Release | : 2005 |
| Genre | : Business & Economics |
| ISBN | : 1601980140 |
Download Valuation Approaches and Metrics Book in PDF, ePub and Kindle
Valuation lies at the heart of much of what we do in finance, whether it is the study of market efficiency and questions about corporate governance or the comparison of different investment decision rules in capital budgeting. In this paper, we consider the theory and evidence on valuation approaches. We begin by surveying the literature on discounted cash flow valuation models, ranging from the first mentions of the dividend discount model to value stocks to the use of excess return models in more recent years. In the second part of the paper, we examine relative valuation models and, in particular, the use of multiples and comparables in valuation and evaluate whether relative valuation models yield more or less precise estimates of value than discounted cash flow models. In the final part of the paper, we set the stage for further research in valuation by noting the estimation challenges we face as companies globalize and become exposed to risk in multiple countries.
| Author | : Patricia Dechow |
| Publisher | : |
| Total Pages | : 58 |
| Release | : 2019 |
| Genre | : |
| ISBN | : |
Download Understanding the Determinants of Analyst Target Price Forecasts Book in PDF, ePub and Kindle
We investigate the determinants of analysts' target price forecasts and evaluate their relative importance for explaining the cross-sectional variation in target price implied returns. We identify four broad determinants: the informational component predictive of future stock returns, errors in forecasting fundamentals, errors in forecasting the expected return to risk, and biases relating to analysts' incentives. Our findings indicate that analysts have a limited ability to predict short-term future returns, and incorrect fundamental forecasts marginally impact target price valuations. Errors in forecasting the expected return to empirical risk proxies such as beta and idiosyncratic volatility have the greatest impact and induce significant noise and optimism into target prices. Job-related incentives induce incremental optimism in target prices. We use our target price determinants model to predict the optimistic bias in target price forecasts and evaluate whether investors correctly ignore the predictable bias. The results suggest that investors make similar valuation errors to analysts and/or do not perfectly back out the predicted bias in target prices.
