IR Best Practices

Corbin Insights: Guidance

October 6, 2016

There have been recent dissertations from well-known financial powerhouses about the negative effects of guidance, essentially encouraging companies to withdraw from issuing quarterly and even annual estimates.

While the argument theoretically suggests that this would reduce volatility and shift both corporate and investor focus to the long term (we agree, that is always the end goal), the reality is that investors are not all rational and not all corporations are created equally.

To be clear, this information is critical, company-generated input for developing the base case for company performance. Not providing this information will result in investors and analysts making their own assumptions that may deviate substantially, thus increasing volatility.  To that end, eliminating guidance does not eliminate consensus estimates.

Providing guidance, either quantitative or qualitative, is best practice.  Recognizing that not all companies have the wherewithal to accurately forecast performance and that some are challenged with visibility of more than one to two quarters, we believe it is in a company’s best interest to strive to provide half-year or annual, and in special cases, quarterly guidance.

Buy Side Comments

“I prefer annual guidance or none at all.”

“If the company has visibility through the year, then it would be helpful to get annual guidance.  A lot of companies will give annual guidance but they cannot see that far out, so it results in a lot of guidance revisions and that doesn’t help anyone.”

“I prefer annual guidance.  We are long-term investors with a very long turnover rate, so the quarterly stuff does not weigh into our thinking as much as it does for most investors.”

Categories: IR Best Practices