The result surprise surprise surprise to call such

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The result: surprise, surprise, surprise. To call such predictably engineered numbers "surprises" is almost absurd.
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To take a random sampling, Becton Dickinson & Co., Booking Holdings (formerly Priceline Group Inc.), Nike , PepsiCo and Thermo Fisher Scientific have earned more than analysts expected in 20 of the past 20 quarters; Boeing , Halliburton , Salesforce.com and United Technologies , in 19 of the past 20. Quarterly earnings at such companies often exceed the analysts' average forecast by only a few pennies per share. In a recent study, accounting and finance professors David Veenman of the University of Amsterdam and Patrick Verwijmeren of Erasmus University Rotterdam compared U.S. stocks that often posted positive earnings surprises against those that seldom did. The companies that most frequently beat expectations were almost 50% more likely to do so again, and outperformed by an average of about one percentage point the next time they surpassed analysts' forecasts. In short, even though the game is obviously rigged, investors are still playing along. A few lessons are obvious. Wall Street's conventional wisdom holds that when a high percentage of companies beat expectations, the economy is unexpectedly strong or the bull market must have farther to run. Don't fall for that. With more than two-thirds of companies reporting positive earnings surprises every quarter, all you should conclude is that they are adept at conniving with the analysts who follow them.
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  • Fall '09
  • Robbins
  • analyst

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