What is the Est Rev: Lowest 30 Down screen?
The Est Rev: Lowest 30 Down screen isolates the thirty stocks whose current-year earnings forecasts have been cut by the largest percentage over the past month. It is the downward mirror of the Top 30 Up screen and the most severe of the four earnings-estimate-revision screens the American Association of Individual Investors (AAII) maintains from I/B/E/S consensus data in Stock Investor Pro. Where the Down 5% screen sets a fixed threshold and admits everyone past it, this one ranks the field and keeps only the worst thirty — the companies where analyst sentiment has deteriorated fastest. It reads less like a shopping list than a roster of names to step away from, or to watch on the short side.
The logic of the deepest cuts
A revision is a change in expectations, and the size of the change scales with how badly the story has broken. Marking a forecast down two or three percent is ordinary housekeeping; slashing it enough to rank among the thirty steepest cuts in the market usually means analysts have found something material and are racing to catch up to it. Requiring both the current-year (Y0) and next-year (Y1) consensus to fall, with downgrades and no upgrades over the past month, keeps the list to companies whose whole forecast arc has bent lower rather than one soft quarter. The screen is built to find the clearest cases of fundamental deterioration, on the view that the deeper the cut, the stronger the negative signal.
What the screen looks for
- Stocks traded over the counter (OTC) are excluded.
- More than four analysts publish a current-year (Y0) estimate, so the ranking reflects a real consensus rather than a lone forecast.
- The current consensus estimate for this fiscal year (Y0) is lower than it was one month ago.
- The consensus for next fiscal year (Y1) is also lower than a month ago.
- At least one analyst revised the Y0 estimate downward in the past month, and none revised it up.
- At least one analyst revised the Y1 estimate downward in the past month, and none revised it up.
- From the stocks that meet those tests, the screen keeps the 30 with the largest percentage decrease in the current-year (Y0) consensus over the past month.
Why the drift runs against these stocks
The estimate-revision effect works in both directions, and this screen captures the downside. Because analysts tend to lower numbers in installments rather than all at once, a stock that has just taken the market's steepest cut is a candidate to keep falling as the rest of the adjustment arrives — the negative side of the post-earnings-announcement drift that Ball and Brown first observed and Bernard and Thomas later measured. Bad news also travels in packs: a company forced into a deep downgrade this month has an above-average chance of another next quarter. That is why buying the worst-revised names because they now look cheap so often disappoints. The cheapness and the cuts arrive together, and the cuts are rarely finished.
What to keep in mind
Ranking by percentage change cuts both ways. A stock revised from four cents to one cent posts a brutal-looking decline that may matter far less than a smaller percentage cut to a large, real number, so weigh the dollar size of the revision and the analyst count before acting. Treating the list as a ready-made short book is riskier still: deeply downgraded, heavily shorted stocks are exactly the ones prone to sharp squeezes on any relief. Use it as a deterioration alert — a prompt to sell into weakness you already hold, or to avoid catching the falling knife — rather than a mechanical trade.
Sources
Ball, R., and Brown, P., "An Empirical Evaluation of Accounting Income Numbers," Journal of Accounting Research, 1968; Bernard, V., and Thomas, J., "Post-Earnings-Announcement Drift: Delayed Price Response or Risk Premium?" Journal of Accounting Research, 1989.
American Association of Individual Investors (AAII) — Stock Investor Pro screen definition and commentary.