Whisper Numbers: What are they? Should investors listen to them?

A whisper number is the unofficial, unpublished earnings per share (EPS) estimates or forecasts that circulate among Wall Street professionals. These numbers are believed to circulate only among insiders and the wealthy clients of a brokerage.

Whisper numbers can be based on a company’s forecast of future earnings or analysts’ estimation of a company’s future earnings. Each individual or group comes up with their whisper numbers by using their personal analyses of the company based on financials, market trends, and suspicions.

Consensus Estimates Vs Whisper Numbers

After every quarter, companies get to publicly report their quarterly earnings results, prior to that, many whisper numbers can be seen or heard all around Wall Street. These numbers are often referred to as analysts’ estimates or expectations. These estimates may also set the benchmark for companies to meet. Falling below analysts’ estimates could batter the performance of a company in the next quarter due to investors pulling out and a decline in share price. On the other hand, companies that beat analysts’ estimates will see an increased performance over the next quarter. However, they may still be affected if they do not meet the mysterious whisper number.

When a company releases its quarterly earnings results, its overall performance is mostly secondary to whether or not it matched analysts’ estimates. Analysts believe that a company’s overall performance is built into its stock price. The market tends to punish and reward companies according to their quarterly performance. For example, if a company that is expected to grow 15% in a given quarter only grows by 13.2%, the market will punish it and there will be a decrease in its stock price. Likewise, the market will reward a company that was expected to grow by 15% but beats estimates and grows by 17%. The logic behind this is that the future earnings are the backbone of share price valuations.

Most analysts dedicate their time to analyzing and making predictions about a company’s future earnings, called forward earnings. Brokerages that are able to rightly predict the outcome of a company even by a penny, stands to earn extra money.

There are some other companies solely engage in selling earnings estimates to institutional investors. What they do is to contact several brokerages that have done their quarterly estimates for various companies, and get these earnings predictions from them. These estimates are often published in Newspapers, Television, or online. They are called a consensus estimate. The published consensus estimates will be grouped according to the highest and lowest estimated values to give a sense of variance.

The major difference between consensus estimates and whisper numbers is that the former is published while the latter is unpublished. In the past, whisper numbers came from Wall Street and were only limited to wealthy clients of top brokerages. The coming of the 2002 Sarbanes-Oxley Act placed a limitation on the availability of some information that led to the whisper number. The regulations of giving out whisper numbers from analysts on Wall Street have intensified as the SEC has tagged it as a punishable offense.

Getting whisper number has become more difficult over the past years, but somehow, insider whispers from Wall Street still get out. A new type of whisper has since emerged, which circulates around the expectations of investors as a whole, based on shared information, past quarter results, and fundamental research.

The new type of whisper is now the type that spreads from individual investors rather than professionals of Wall Street. The whisper still remains unofficial and unpublished even though it comes from individual investors, compared to the published and official consensus estimates.

Should investors listen to whisper numbers?

Because the pattern of whispers has changed over time, and many sources now produce whisper numbers, whether or not an investor should listen to whispers would be dependent on the quality of the source. Acting on the information of whisper numbers is also dependent on the type of investor you are. For example, as a long-term investor, the price action around each earnings season may differ which will make a whisper number less effective. However, a short term investor who seeks to profit from share price changes in each season will find whisper numbers very effective.

Whisper numbers are beneficial in several ways. For example, if a whisper number is lower it is a good signal to pull out of a stock you own before the company officially releases its results. Also, when it comes to analyzing a large number of stocks that are yet to be covered by analysts, a whisper may provide a little insight into the upcoming financials.  

When it comes to circulating whispers based on the former approach, the SEC tags it a punishable offense. Knowing that the former approach of whispers is illegal when dealing with numbers that do not have a traceable legal source, you may want to think twice about depending on the information. Whispers are not a guaranteed way to make a profit off the market, however, they are should be considered by serious investors.

Whisper Numbers Summary

Whisper numbers were formerly the unpublished and unofficial earnings per share (EPS) forecasts that circulated Wall Street. The information was specially reserved for wealthy clients of brokerages, giving them an advantage over other investors. With the regulation of whispers by the SEC, whisper numbers now represent the combined expectations of individual investors. Whispers are more beneficial and effective to more active investors compared to long-term (buy-and-hold) investors. Whispers can be used as a tool to help identify or avoid an earnings surprise or disappointment.