SUE normalizes earnings surprises by considering the level of analyst uncertainty. That leads to the assumption that the narrower the range of analyst estimates (meaning that everyone is pretty much in agreement about what the company will report), the greater the impact any surprise or deviation from that mean will have on the stock price. Since the model's inception in January 1996, 78% of the companies predicted to post a positive earnings surprise did in fact come through. This compares with about 57% of Russell 1000 companies posting positive earnings surprises in the same period.
Outback Steakhouse ( OSI) is expected to report a profit of 67 cents per share when it announces earnings on April 20. SUE thinks the food chain won't deliver. The stock has been putting in some lower highs, and the hype from the Atkins diet, which helped propel shares an all-time high in March 2004, has dissipated. Beef prices remain high, though, and this could lead to lower revenue and, more importantly, margin compression. Look at the May $45 puts for less than a buck for a cheap way to play an earnings shortfall or lowered guidance.