Revisiting Revision Ratios

In January, we discussed how analyst sentiment was at a six-year high as of the end of 2017. Here, we take a look at the small cap universe and see if that feeling has endured, or if analysts have reined in their expectations.

January saw the highest percentage of positive revisions for any single month since the beginning of 2008. Over 70% of all estimate changes for the next two fiscal years were positive in the first month of 2018. February’s ratio declined to a more normal 56.3%, yet was still the most positive February in our data. March’s positive percentage fell just below 50%, to 49.7%, yet remained above March’s average. Analyst sentiment picked up in April, as the positive percentage improved to 55.6%, also above average.

Source: S&P Clarifi, 361 Capital. 361 Capital small cap universe screens the Russell 2000 for liquidity and analyst minimums.


Given the magnitude of January’s ratio, it was inevitable to see lower percentages in the subsequent months. February, March, and April were each above the ten-year average for those months. So, despite the decline from January, revisions are still more positive than negative, indicating analyst sentiment is still favorable. The directional changes of the first four months of 2018 have actually been consistent with past averages. Typically, February is lower than January, March is lower than February, and then April increases from March.

The high positive revision rates observed during the first few months is partly a function of recently enacted tax and accounting changes. But, a stronger dollar, rising rates, and higher domestic exposure each provide a nice economic tailwind relative to larger capitalized companies. In short, analyst sentiment in our small cap universe is trending above average. Of course, our sentiment for small cap equities remains high as well (but we could be biased).

Read our last blog post, Correlations, Data Frequencies and Expectations >