When companies release their financial reports some of them also choose to provide guidance about their future performance for other quarters. For example, a company issuing a Q1 earnings report may provide guidance for the second quarter. That guidance could then state that earnings will be $0.17 a share and that revenues will be $280 million for the quarter. Analyst will conduct research and consider the guidance issued in determining their opinion about what the earnings should be. All the analyst opinions about how a particular company will perform get grouped together to form the consensus estimate.
The degree to which a stock price will be affected depends on how actual earnings differ from the consensus estimate. Two things to look out for in relation to earnings are surprises and revisions. A surprise can be positive or negative, and occurs when the earnings a company reports are different than the consensus estimate. Positive surprises occur when earnings are better than projections, and negative surprises occur when earnings are below projections. Revisions are either up or down, and show a shift in the analyst opinion about the future performance of a company. In the short term both positive and negative surprises along with revisions, can account for some stock price fluctuations.