Student Analysts Outshine Their Wall Street Counterparts
The top competitors in our latest All-America Student Analyst Competition showed a knack for estimating company earnings and revenue.
Bryan Chu, a sophomore finance major at the University of North Carolina at Chapel Hill, wasn’t too surprised when the Walt Disney Co. trounced earnings expectations in February following the blockbuster release of Star Wars: The Force Awakens. He bet correctly that the Burbank, California–based media titan would break $15 billion in revenue for the latest quarter. “Their earnings per share were higher than I predicted, but their revenue was right on,” says Chu.
The 20-year-old Brooklyn, New York–native takes top honors in Institutional Investor’s fourth All-America Student Analyst Competition — now held quarterly. Whereas it was a stock-picking contest in previous years, this time II partnered with Estimize, a crowdsourced earnings estimates platform, to let students experience a day in the life of an equity research analyst.
Students participate by logging onto the Estimize web site and submitting earnings per share and revenue estimates for 40 preselected stocks across a swath of industries — ranging from household names like Apple to smaller, less-covered companies like Tenet Healthcare Corp. The platform’s algorithms then rank contestants based on the accuracy of their predictions and allow them to see how they stack up against Wall Street and all other Estimize users. “It’s kind of like fantasy sports for stocks,” says Leigh Drogen, founder and CEO of Estimize.
Chu, who moonlights as a media and telecommunications analyst for UNC’s portfolio management team, welcomed the challenge. “It’s fun to see the numbers behind all the news articles,” he says. A firm believer in renewable energy, Chu hopes to pursue a career in investment banking to help green technology firms raise capital.
He demonstrated his understanding of the energy sector with his estimates for Chevron Corp., judged to be the most accurate on the entire Estimize web site and beating the Wall Street consensus. He calculated earnings per share of $0.46 on revenue of $29.126 billion and racked up points when the San Ramon, California–based oil company posted $29.247 billion in revenue and earnings of $0.26 per share.
2016 Q1 All-America Student Analyst CompetitionTop 10 Overall
|1||Bryan Chu||University of North Carolina at Chapel Hill|
|2||Brenda Smith||Indiana University South Bend|
|2||Li Wang||Johns Hopkins University|
|4||Spencer McCammon||Indiana University South Bend|
|5||Neel Patel||Indiana University South Bend|
|6||David Camp||Indiana University South Bend|
|7||Anjie He||Indiana University South Bend|
|8||Michael Kaiser||University of Alberta|
|9||TJ Kyner||Ohio State University|
|10||Sebastian Cameron||Indiana University South Bend|
But surely a student beating Wall Street must be a fluke? “In some cases, students today have a much better, visceral understanding of what’s going on in certain companies than 35- to 45-year-old analysts who sit in Manhattan skyscrapers and don’t get down in the nitty-gritty of certain things,” insists Estimize’s Drogen. According to him, student estimates add valuable insight that enhances the accuracy of the Estimize consensus predictions — touted as beating Wall Street 70 percent of the time.
In fact, Chu’s earnings per share and revenue estimates beat the Wall Street average 60 percent of the time. On average his predictions were off by 10. percent, well below the 13.3 percent observed among all Estimize users.
Likewise, more than half the estimates by the competition’s fifth-place finisher — Indiana University South Bend senior Neel Patel — beat the Wall Street consensus, though he had never attempted such calculations before. “We’d done stock-picking contests in other classes, but this was new,” says Patel, who moved to Indiana from India in 2013.
The 22-year-old finance major enrolled in an advanced studies class called “Topics of Investment” this semester. His professor, Xing Lu, required all 16 students to enter the competition, and 6 of them scored in the top 10 overall. “Earnings announcements are key to stock price changes,” says Lu. “This experience will help build their confidence in estimating earnings and picking stocks.” He asked students to submit short explanations of the rationale behind some of their estimates.
In one such report, Patel described his strategy for ZELTIQ Aesthetics, a Pleasanton, California–based medical device maker. “Almost all the peers from this category have posted positive earnings and have beat the estimates,” he wrote. “Although the trend does not necessarily mean anything for an individual company, it does give an indication as to what can be expected from the same-category company.”
At the end of February ZELTIQ announced that it had beat revenue expectations with $78.23 million for the quarter, while earnings per share flat-lined at $0.05. Patel had pegged earnings per share at $0.11 on quarterly revenue of $78.05 million, which ranked as the fourth most accurate of all users on the Estimize platform.
Small-capitalization companies like ZELTIQ posed the biggest challenge, according to Patel. “You had no news on them, so you had to do some real research,” he explains.
Anjie He, a junior at Michigan State University, agrees. “There were many companies I’d never even heard of,” says He, who placed seventh.
When it came to companies she knew well, however, the Kunming, China, native didn’t miss her mark. He’s best calls were for Under Armour. At the time of the competition, she was working on a case study about the Baltimore-based sportswear retailer for a business management class. “I had general knowledge of the company, and then I looked into its financial situation to get my estimates,” explains He.
She beat both the Wall Street and Estimize consensuses for Under Armour after logging the tenth-most-accurate predictions on the entire Estimize platform. On January 15 the 21-year-old locked in her estimates: earnings per share of $0.48 and revenue of $1.145 billion. On January 28 Under Armor reported earnings per share of $0.48 and revenue of $1.171 billion. Bull’s-eye!
The next round of the All-America Student Analyst Competition begins on April 18 with Pawtucket, Rhode Island–based toy company Hasbro’s earnings announcement. Interested students can sign up here. For winning the game this past quarter, UNC’s Chu has been invited to attend II’s seventh Annual U.S. Investment Management Awards in New York on May 19. Perhaps one day we’ll see Chu at the top of the All-America Research Team.
Follow Jess Delaney on Twitter at @jdelaney_NYC.