The Accuracy of Long-Term Earnings Forecasts for Industrial Firms

Abstract

Valuation analysis, security selection, and cost of capital estimation techniques are dependent on long-term earnings forecasts. This study focuses on the accuracy of long-term earnings forecasting models, specifically comparing the accuracy of Value Line analysts' versus mechanical forecasts. Analysts are expected to be more accurate than mechanical methods because analysts can incorporate more information. Also, analysts should not be in demand if they did not provide information that was not readily available from extrapolative forecasts. The empirical evidence from this study tends to support the superiority of Value Line analysts' long-term earnings forecasts to various extrapolative forecasting models.