UK Accounting Glossary
A consensus forecast aggregates the estimates of security analysts of key market-moving data, particularly a company’s quarterly earnings per share (EPS). Based on analysts’ earnings models, a consensus forecast of a company’s EPS is prepared by services such as the Institutional Brokerage Estimate System (IBES), First Call, and Zacks. The methodology for preparing a consensus forecast varies from organization to organization; put simply, however, the consensus forecast is an average of the EPS estimates of security analysts who follow the stock. The consensus forecast is widely published and known by investors. When the company releases quarterly earnings, investors will often bid up the stock if profits surpass the consensus forecast; if the consensus forecast exceeds earnings, investors tend to punish the stock. Note that, based on economists’ projections, a consensus forecast of the monthly unemployment rate (and other key market-moving data) is also widely disseminated. In a similar fashion, if the consensus forecast is better than expected, the effect on markets is salutary; if worse, markets tend to decline.
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This glossary post was last updated: 4th February 2020.