Monday, October 24, 2005

Expecting the Unexpected

Earlier today, Takasago Thermal Engineering Co. Ltd. (Quick Code #1969) revised earnings estimates significantly lower. Prior to the revision, there was little disagreement amongst the six or so analysts (+/- 10% from the mean) for both FY06 and FY07. The stock price may open down as investors react to the news, but it's already reasonably cheap on a number of metrics, and so although it may get cheaper, it probably won't be a catastrophe. I can't say I am emotionally attached one way or the other (though as a matter of disclosure I am short a little bit of the stock).

What I do care about, however, is that one of the big-three brokers had the audacity to proclaim "DOWNWARD REVISION TO 1H RECURRING PROFIT NOT SURPRISING". Umm, excuse me? It sure seemed to surprise the company (-25% from THEIR previous expectation). And it sure seemed to surprise the consensus of security analysts who ostensibly are supposed to have their collective fingers on the pulse of the business. And it even seemed to surprise the knowing analyst who proclaimed he wasn't surprised, since the 1H results were below his own stated forecasts. Maybe there was a translation problem here, an "engrish-ism" as the some less culturally sensitive gaijin like to call them Or a cultural difference. Or maybe he really didn't mean what he said, which is an increasingly common and understandable occurrence that could happen to almost anyone. In fact, it recently happened to President Bush in one of his early post-Katerina visits to New Orleans with then-FEMA director Brown, when to the press, the obviously embarrassed FEMA chief, and in fact the whole world he blurted out : "Brownie.....yer umm errrr doin' one heckuva job....", when what he really meant was "Jesus Christ this whole city smells 'o sh*t worse 'an a port-a-john atta west-Texas Chili where 's that damn Presidential Whirlygig??" We all make occasional slips of the tongue.

But in regards to said analyst's proclamation, my view is crystalline on this: it is linguistically impossible for a company revise down from previous forecasts (where the company, the consensus, and the analyst are on the same page) without it being "a surprise". Hindsight is one thing, but to say it wasn't "a surprise, well THAT'S cheating! For it becomes recursive: if it wasn't a surprise, then one needn't revise down because it would have been expected. Call me pedantic....

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