Introducing TrueBeats EPS & Revenue surprise forecasts by ExtractAlpha

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I’ve been studying earnings estimates data for about 23 years now. In that time, the state of the art in quantitative earnings forecasting has evolved. The creation of the Institutional Brokerage Estimates System (I/B/E/S) in the 1970’s – where forecasts from multiple brokers were combined to create a “consensus” – was the first game changer, and consensus estimates remain common in many financial applications.

Then, starting in the 1990’s, academic and practitioner research started to show that consensus forecast errors could be improved upon by looking at exactly who was providing those estimates – by considering their track record, tenure, employer, timeliness, and other features. New analytics firms such as Zacks, DAIS Group, and notably StarMine, built analytics to come up with a better composite forecast of earnings, and therefore, of earnings surprises. I was fortunate to be an early team member at StarMine and designed the original SmartEstimate alongside StarMine’s founder in 1999 and 2000. Other providers such as S&P Global soon followed suit with their own versions.

Few of these methodologies, however, have evolved or improved in the last 15-20 years. All of these existing methods are limited by the range and quality of forecasts made by the underlying analysts. But there are cases when all analysts are similar, and/or analysts do not provide the most significant source of forecast accuracy. These techniques fail to take into account a wide variety of information which can be gleaned from other sources of information on corporate earnings, including time series and cross-sectional effects. The amount of information available has increased, along with the data science tools at our disposal, but these models have remained stagnant. Until now.

Today I’m pleased to announce ExtractAlpha’s release of the TrueBeat, which extends these earlier ideas to create the new state of the art: a much stronger prediction of upcoming earnings and sales surprises than has come before. TrueBeats incorporates three subcomponent forecasts:

  1. ExpertBeat: the quality and timeliness of the forecasts made by sell side analysts
  2. TrendBeat: Historical earnings and revenue trends for the company in question as well as its peers
  3. ManagementBeat: Variables which capture management behavior, such as management guidance, estimate variance, announcement timing, and company characteristics

 

TrueBeats dynamically incorporates these subcomponents to create explicit earnings and revenue surprise forecasts, with intelligent look-back periods and weightings. These surprise forecasts can be combined with consensus earnings and revenue estimates to create a superior numerical forecast of EPS and sales.

TrueBeats, built on FactSet’s excellent detailed earnings estimates data, accurately predict earnings and sales surprises for thousands of companies every day with an 80% accuracy rate, by combining the above diversified sources of earnings intelligence. Here’s what they look like in practice:

The above dashboard shows EPS and Revenue TrueBeats, broken down into their three components for the current quarter and plotted over time relative to realized surprises. It also also shows forward quarters’ and years’ TrueBeat values. And you can click through to see data for peers – stocks which are covered by the same analysts. All of these values are also available in a bulk datafeed with history going back to 2002.

How did TrueBeats do in the last few quarters? You can check out the scorecard here, where you can also see our hits and misses, and download sample data:

That’s an 80% hit rate last quarter, and previous quarters going back 20 years have looked similar.

What about using TrueBeats as an alpha factor? Our research team looked into that too. If we form dollar-neutral portfolios which go long the largest TrueBeat values and short the smallest (most negative) ones, and rebalance each day, we see a nice return curve like so:

That’s a 14% annualized return before transaction costs (turnover is approximately 6% per day, so this is a roughly one-month sentiment signal), and with a Sharpe ratio of 1.4, without any additional risk controls. We also don’t see deterioration over time – the curve doesn’t flatten. This is a brand new model, and not a crowded signal like those offered by the incumbents.

TrueBeats are available as a datafeed and on a new beta dashboard product, where one can see all upcoming expected beats and misses and drill down into the single-stock details:

In summary, TrueBeats can be additive to any investment process which looks to forecast EPS and revenue surprises or to use an innovative sentiment signal in alpha generation.

We are very excited about the launch of the new state of the art in earnings surprise prediction models. Please reach out for further information!

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Chloe Miao

Chloe joined ExtractAlpha in 2023. Prior to joining, she was an associate director at Value Search Asia Limited. She earned her Masters of Arts in Global Communications from the Chinese University of Hong Kong.

Matija Ratkovic

Matija is a specialist in software sales and customer success, bringing experience from various industries. His career, before sales, includes tech support, software development, and managerial roles. He earned his BSc and Specialist Degree in Electrical Engineering at the University of Montenegro.

Jack Kim

Jack joined ExtractAlpha in 2022. Previously, he spent 20+ years supporting pre- and after-sales activities to drive sales in the Asia Pacific market. He has worked in many different industries including, technology, financial services, and manufacturing, where he developed excellent customer relationship management skills. He received his Bachelor of Business in Operations Management from the University of Technology Sydney.

Perry Stupp

Perry brings more than 20 years of Enterprise Software development, sales and customer engagement experience focused on Fortune 1000 customers. Prior to joining ExtractAlpha as a Technical Consultant, Perry was the founder, President and Chief Customer Officer at Solution Labs Inc. a data analytics company that specialized in the analysis of very large-scale computing infrastructures in place at some of the largest corporate data centers in the world.

Perry Stupp

Perry brings more than 20 years of Enterprise Software development, sales and customer engagement experience focused on Fortune 1000 customers. Prior to joining ExtractAlpha as a Technical Consultant, Perry was the founder, President and Chief Customer Officer at Solution Labs Inc. a data analytics company that specialized in the analysis of very large-scale computing infrastructures in place at some of the largest corporate data centers in the world.

Janette Ho

Janette has 22+ years of leadership and management experience in FinTech and analytics sales and business development in the Asia Pacific region. In addition to expertise in quantitative models, she has worked on risk management, portfolio attribution, fund accounting, and custodian services. Janette is currently head of relationship management at Moody’s Analytics in the Asia-Pacific region, and was formerly Managing Director at State Street, head of sales for APAC Asset Management at Thomson Reuters, and head of Asia for StarMine. She is also a board member at Human Financial, a FinTech firm focused on the Australian superannuation industry.

Leigh Drogen

Leigh founded Estimize in 2011. Prior to Estimize, Leigh ran Surfview Capital, a New York based quantitative investment management firm trading medium frequency momentum strategies. He was also an early member of the team at StockTwits where he worked on product and business development.  Leigh is now the CEO of StarKiller Capital, an institutional investment management firm in the digital asset space.

Andrew Barry

Andrew is the CEO of Human Financial, a technology innovator that is pioneering consumer-led solutions for the superannuation industry. Andrew was previously CEO of Alpha Beta, a global quant hedge fund business. Prior to Alpha Beta he held senior roles in a number of hedge funds globally.

Natallia Brui

Natallia has 7+ years experience as an IT professional. She currently manages our Estimize platform. Natallia earned a BS in Computer & Information Science in Baruch College and BS in Economics from BSEU in Belarus. She has a background in finance, cybersecurity and data analytics.

June Cook

June has a background in B2B sales, market research, and analytics. She has 10 years of sales experience in healthcare, private equity M&A, and the tech industry. She holds a B.B.A. from Temple University and an M.S. in Management and Leadership from Western Governors University.

Steven Barrett

Steve worked as a trader at hedge funds and prop desks in Hong Kong and London for 15+ years. He also held roles in management consultancy, internal audit and business management. He holds a BA in Business Studies from Oxford Brookes University and an MBA from Hong Kong University of Science & Technology.

Jenny Zhou, PhD

Jenny joined ExtractAlpha in 2023. Prior to that, she worked as a quantitative researcher for Chorus, a hedge fund under AXA Investment Managers. Jenny received her PhD in finance from the University of Hong Kong in 2023. Her research covers ESG, natural language processing, and market microstructure. Jenny received her Bachelor degree in Finance from The Chinese University of Hong Kong in 2019. Her research has been published in the Journal of Financial Markets.

Kristen Gavazzi

Kristen joined ExtractAlpha in 2021 as a Sales Director. As a past employee of StarMine, Kristen has extensive experience in analyst performance analytics and helped to build out the sell-side solution, StarMine Monitor. She received her BS in Business Management from Cornell University.

Triloke Rajbhandary

Triloke has 10+ years experience in designing and developing software systems in the financial services industry. He joined ExtractAlpha in 2016. Prior to that, he worked as a senior software engineer at HSBC Global Technologies. He holds a Master of Applied Science degree from Ryerson University specializing in signal processing.

Jackie Cheng, PhD

Jackie joined ExtractAlpha in 2018 as a quantitative researcher. He received his PhD in the field of optoelectronic physics from The University of Hong Kong in 2017. He published 17 journal papers and holds a US patent, and has 500 citations with an h-index of 13. Prior to joining ExtractAlpha, he worked with a Shenzhen-based CTA researching trading strategies on Chinese futures. Jackie received his Bachelor’s degree in engineering from Zhejiang University in 2013.

Yunan Liu, PhD

Yunan joined ExtractAlpha in 2019 as a quantitative researcher. Prior to that, he worked as a research analyst at ICBC, covering the macro economy and the Asian bond market. Yunan received his PhD in Economics & Finance from The University of Hong Kong in 2018. His research fields cover Empirical Asset Pricing, Mergers & Acquisitions, and Intellectual Property. His research outputs have been presented at major conferences such as AFA, FMA and FMA (Asia). Yunan received his Masters degree in Operations Research from London School of Economics in 2013 and his Bachelor degree in International Business from Nottingham University in 2012.

Willett Bird, CFA

Prior to joining ExtractAlpha in 2022, Willett was a sales director for Vidrio Financial. Willett was based in Hong Kong for nearly two decades where he oversaw FIS Global’s Asset Management and Commercial Banking efforts. Willett worked at FactSet, where he built the Asian Portfolio and Quantitative Analytics team and oversaw FactSet’s Southeast Asian operations. Willett completed his undergraduate studies at Georgetown University and finished a joint degree MBA from the Northwestern Kellogg School and the Hong Kong University of Science and Technology in 2010. Willett also holds the Chartered Financial Analyst (CFA) designation.

Julie Craig

Julie Craig is a senior marketing executive with decades of experience marketing high tech, fintech, and financial services offerings. She joined ExtractAlpha in 2022. She was formerly with AlphaSense, where she led marketing at a startup now valued at $1.7B. Prior to that, she was with Interactive Data where she led marketing initiatives and a multi-million dollar budget for an award-winning product line for individual and institutional investors.

Jeff Geisenheimer

Jeff is the CFO and COO of ExtractAlpha and directs our financial, strategic, and general management operations. He previously held the role of CFO at Estimize and two publicly traded firms, Multex and Market Guide. Jeff also served as CFO at private-equity backed companies, including Coleman Research, Ford Models, Instant Information, and Moneyline Telerate. He’s also held roles as advisor, partner, and board member at Total Reliance, CreditRiskMonitor, Mochidoki, and Resurge.

Vinesh Jha

Vinesh founded ExtractAlpha in 2013 with the mission of bringing analytical rigor to the analysis and marketing of new datasets for the capital markets. Since ExtractAlpha’s merger with Estimize in early 2021, he has served as the CEO of both entities. From 1999 to 2005, Vinesh was the Director of Quantitative Research at StarMine in San Francisco, where he developed industry leading metrics of sell side analyst performance as well as successful commercial alpha signals and products based on analyst, fundamental, and other data sources. Subsequently, he developed systematic trading strategies for proprietary trading desks at Merrill Lynch and Morgan Stanley in New York. Most recently he was Executive Director at PDT Partners, a spinoff of Morgan Stanley’s premiere quant prop trading group, where in addition to research, he also applied his experience in the communication of complex quantitative concepts to investor relations. Vinesh holds an undergraduate degree from the University of Chicago and a graduate degree from the University of Cambridge, both in mathematics.

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