November 23, 2016
Surveillance Solutions: Taking a proactive stance pre- and post-earnings
If you’re an IRO in the run up to an earnings release, you’re probably stressed. You’re trying to understand possible reactions from investors within your shareholder base. You’re needing to anticipate questions from the analyst community following the release and finalize logistics. You will also want to monitor the performance of your peers following their respective releases.
The reality is that going into an earnings’ call can be like stepping into an abyss where anything can happen, especially when you’re not sure of the buy-side’s expectation of your company’s performance. The good news is that using new stock surveillance tools is like having the answer key before a test. Now advanced, predictive analytics can help put you in a proactive position rather than a reactive one.
Don’t be caught off guard by post-earnings market reaction. Advanced stock surveillance analytics leverage information from the equity and options markets and allow you to better understand pre-earnings price and volatility expectations, which can help you step into earnings as prepared and informed as possible.
When you’re armed with pre-emptive visibility into what the buy-side is expecting, you can begin crafting a post-earnings strategy, prepared for the news (good or bad) and what’s to come. And when you’re informed of the investment community’s expectations of your stock performance, your management team is, too.
Putting it to use
Say you’re an IRO who’s prepping for earnings next week and is concerned because the company’s numbers are going to miss expectations; it appears that guidance is going to be considerably light.
Forward-looking analytics inform you ahead of time that traders are positioned bullishly heading into earnings, and they can expect a rather benign market reaction. While you won’t be delivering the news investors had hoped for, intelligence provides you with the information you need to forge a strategy to best prepare (rather than react) for a worst-case scenario.
Working with senior management, sales and marketing, and other key shareholders, you have pro-actively developed key messaging, remarks for the sellside and top institutional shareholders, and can begin to re-engage with prospective shareholder targets immediately after the earnings’ call (see below for more tips on this).
Quantify market expectations
You know what analysts have forecasted for earnings and key performance indicators and how company earnings and performance will measure up to those expectations. Advanced predictive analytics can tell you what the market anticipates – sentiment and volatility indicators can provide you with the knowledge ahead of time whether sentiment and expected price movement are aligned with your company’s results. These analytics allow you to brief management as to market expectations. If sentiment and expected price movement are not in line with the results you are preparing to release, you can provide advance notice to management and, where appropriate, adjust messaging accordingly.
Detailed post-earnings follow up
Every investor is investing based on a key thesis, and stock surveillance helps understand motivations behind buying and selling. Post-earnings movements, which are often quite volatile, can shed light on how investors are interpreting post-earnings data, and what to expect going forward as a result. When you understand who sold shares post-earnings, how much they sold, and why you are in a better position to engage with senior management and answer any questions they might have with granularity, including the following:
- Who took action? Who sold shares and who bought a new position?
- Is the behavior of a certain shareholder a one-off, or is it consistent over time?
- What growth investors are buying or selling your stock? Why?
When you’re privy to an investor’s post-earnings behaviour, you’re able to target those who may be at high risk to sell and ensure you’re engaging with them with a certain amount of patience and sensitivity.
Stock surveillance analysts work with their clients to closely monitor any unusual trading or activity heading into earnings, and more importantly, following through with intensive post-earnings shareholder analysis.
Analysts familiar with your shareholder base can help identify more volatile shareholders likely to sell on an earnings disappointment, and those shareholders with significant buying power capable of adding to their positions following earnings – whether they are buying on a positive release or adding to their positions on short-term price weakness.
IROs who only have access to 13F filings know who is holding stock only as of the last day of last quarter. With real-time surveillance, you can operate in a pre- and post-earnings world with all the information you need to properly manage expectations and answer questions.