Street Expectation

Categories: Banking, Stocks

See: Whisper Number.

Boeing said earnings would be “over $2” next quarter. But Street expectations were way higher than that number. More like 3 bucks, even 3 and a quarter.

How do you know what Street expectations are? Well, if the stock is trading at some astronomical multiple, then, um, Street Expectations are high. What’s astronomical? Well, for a company like Boeing, which grows at meh rates (i.e. rates about the same as where the overall market grows), then it might trade at a modest premium to the market. Like...if the S&P trades at 20x earnings, and Boeing trades at 23x, then maybe Street expectations are in line. If it trades at 30x, then obviously Street Expectations are a lot higher than the earnings expectations that are published.

That is, at $160 on $8 a share of trailing earnings, BA trades at 20x. At $320, it trades at 40x. This multiple is broadcasting that the Street really believes that BA will earn more like $16 than $8.

See: Whisper Number.

Related or Semi-related Video

Finance: What is a whisper number?16 Views

00:00

Finance allah shmoop what is ah whisper number all right

00:07

this is but hair implants it's going to be the

00:10

next amazon Trust me anyway be h i is trading

00:13

at one hundred times earnings five times the price to

00:17

earnings multiple of the average growth stock today trading it

00:20

twenty times earnings last year be h i earned a

00:23

dollar a share It has a buck or two a

00:25

share in cash and no debt It has communicated a

00:27

wall street through its quarterly conference calls and meetings with

00:31

analysts that it's coughing lee hopes to earn a dollar

00:36

fifty this year a dollar to a dollar fifty what

00:39

we did there with the word coughing Lee you know

00:41

it's not from these cohibas we cough because they cough

00:45

when they say a dollar fifty Why Well because we

00:48

do the math on a few of the key metrics

00:50

they've given us Like they said we're opening another two

00:54

thousand stores in eastern europe almost double our number in

00:58

the u s today and they say we're supply constrained

01:02

just not enough but hair to go around so we're

01:05

shopping for more Apparently slovenia has had excellent harvest this

01:10

year and then they say people are growing older boulder

01:14

and yeah there really is something about all that wifi

01:16

in carrying cellphones in your pocket all the time yeah

01:19

that's what they say and that was the recording of

01:21

them saying it really we were there All right so

01:23

if you had everything up and put the above data

01:25

and a few other teen nuggets of information you've gleaned

01:28

about their hair growth industry perspective well then your financial

01:32

model would show earnings this year something more like three

01:36

or even four dollars a share not that paltry dollar

01:40

fifty that they're telling everyone they hope to make if

01:42

they try really hard So you wonder why on earth

01:45

would the cfo of but harry implants guide analysts in

01:48

making them believe the company would only earn a dollar

01:51

fifty when she and everyone around her thinks that more

01:54

likely the number is going to be three or four

01:56

bucks a share in earnings this year Well lawsuits for

02:00

one puns of ambulance chasing scummy lawyers out there claiming

02:05

they're acting in the best interest of you know bubba

02:07

shareholder they're just waiting for a stock to drop and

02:10

then they sue the company for you know stuff and

02:14

then there's other things not communicating well enough not marketing

02:18

well enough of not being able to predict the supply

02:21

line of their butt hair well enough Yeah you name

02:23

and the lawyers will see you for it Cos also

02:25

love being heroes and they love beating their estimates toe

02:29

wall street all the time It just makes him you

02:31

know feel good under promise over Deliver that thing All

02:33

right So along comes first quarter's earnings and last year's

02:37

first quarter showed earnings of sixteen cents a share Your

02:40

went by quarter like this sixteen twenty three one nine

02:43

Thirty There you go So the street is expecting at

02:46

least thirty two cents in earnings this quarter It'd be

02:49

growth of one hundred percent over the period a year

02:52

ago But one hundred percent growth from last year would

02:55

give the company earnings of two dollars a share So

02:58

that's not what the street is really thinking when it's

03:02

paying one hundred dollars a share for this stock If

03:05

they were actually thinking the stock would really print on

03:08

ly two dollars a share in earnings the stock would

03:10

probably not be trading for one hundred boxes share and

03:14

probably more like fifty there's nothing trades at fifty times

03:17

actual earnings or at least not fifty times what wall

03:21

street actually thinks the company will print The number of

03:23

the street is whispering It took us a long time

03:27

to get there the whisper number thing but we did

03:29

is forty cents a share in earnings there whispering that

03:32

the company says they'll dio something less than forty but

03:36

they better hit forty cents because that's what everyone's whispering

03:38

about If the company hits forty cents in its first

03:41

quarter's earning to report while learning through the rest of

03:43

the year could go something like this you know forty

03:45

fifty sixty seventy and then that would produce to twenty

03:49

years share in earnings and i would be the absolute

03:51

minimum the company would need to keep anything close to

03:54

its huge multiple or stock price It probably needs more

03:57

earnings growth to stay triple digits something like maybe forty

04:01

sixty eighty eight dollars something like that and then you're

04:04

in the three dollars in change number and that would

04:06

work a lot better because then you're only treading it

04:08

Like twenty eight times earnings which is not some astronomical

04:11

multiple Got it all right Well the key idea here

04:14

is that the whisper number is the rial number that

04:17

actual investors care about the company hitting not what the

04:21

stockbrokers sell Side analysts published in their earnings estimates that

04:26

they hoped the company would earn thirty two cents Blah

04:29

ba blah ba blah Yeah can't trust your stockbroker in

04:31

that setting So the key idea here is the number

04:34

that matters is the whisper number whisper number because on

04:38

wall street you don't always die with a yell sometimes

04:42

it's just with a whisper like that so that's a

04:45

whisper number Now go out and buy a bunch of

04:47

b h i stock and remember i'm not on ly 00:04:50.415 --> [endTime] but harry implants client I'm also the president

Find other enlightening terms in Shmoop Finance Genius Bar(f)