The value, challenges and best practices for managing analyst consensus
Analyst consensus – the aggregated estimates from analysts on a company’s upcoming results – is a critical part of the financial communication landscape and an essential tool for IR teams.
Yet for many investor relations professionals, working with analyst consensus is time-consuming, difficult to analyze and too often based on incomplete data.
The value of analyst consensus
Used effectively, analyst consensus is much more than a forecast. Internally, it helps evaluate whether market communication is needed. Essentially, it is a regulatory requirement to issue a profit warning if actual results deviate significantly from market expectations. Externally, it can play a proactive role in helping the market form clearer expectations.
It also gives IR teams an opportunity to identify outliers and open constructive dialogue with analysts. These conversations, of course, must always stay within the bounds of publicly available information, but they can uncover valuable insights into assumptions and perspectives.
The challenges IR teams face
Collecting, updating and analyzing the data is labor-intensive. It often means reaching out to analysts one by one asking them to update their estimates and managing spreadsheets that quickly become outdated. Things become even more complex if there has been M&A activity in the company or changes to its reporting segments.
This is why many companies rely on third-party services – but that can create yet another issue. Most providers have limited analyst coverage, partly because many providers operate a dual-sided business model, charging companies to compile estimates while also reselling the data to third parties. The result is incomplete figures that are difficult for either the IR team or the market to rely on with confidence.
Also, many IR teams lack tools that enable easy and in-depth analysis of the data. Without the ability to track historical accuracy or compare analysts over time, it is hard to extract real insights.
What IR teams should do
- Save time and use a provider for collection
Most IR teams have neither the time nor the resources to manage analyst consensus by themselves. To use a third-party service that can collect and compile analyst consensus is likely the smartest choice. - Ensure high coverage and datapoints
Evaluate how many of the possible research firms your provider includes. A consensus with lower coverage risks losing both its credibility and usefulness. Also, ensure you are satisfied with the data points that are being collected, comparing apples with apples and not pears. - Use software that delivers actionable and detailed insights
Use a platform where data is not only gathered, but is also easy to analyze. This way you can easily view current and historical estimates in total and per firm. That is how you will gain actionable, detailed insights from your analyst consensus in practice. - Communicate the analyst consensus on your IR website
Use automated modules to publish selected KPIs on your IR website. This helps align expectations and strengthens transparency, which can attract new investors and keep existing ones informed.
At Modular Finance, we compile analyst consensus for over 100 listed companies across the Nordics and the UK with our service Estimates. Through our IR platform Monitor, each client can easily explore and analyze their data, without spending time on manual admin. Modules for your IR website are included and will be updated automatically and dynamically. We never resell the data to third parties, which is generally much appreciated by analysts and their employers.
Our ambitions are clear: to remove the operational burden from IR teams, and to ensure that both IR teams and the capital markets as a whole can trust and act strategically on the numbers.
