Question

A pharmaceutical company announces that it has received Federal Drug Administration approval for a new allergy drug that completely prevents hay fever. The consensus analyst forecast for the company’s earnings per share (EPS) is $4.50, but insiders know that, with this new drug, earnings will increase and drive the EPS to $5.00. What will happen when the company releases its next earnings report?

Answer 1

stock price will not change at all

Step-by-step explanation:

Based on the information provided it can be said that when the company releases its next earnings report the stock price will not change at all. This is because stock markets move fast, the stock price of EPS moved when the in the announcement about FDA approval was made. Therefore the markets already expect these changes to reflect on the earnings report so prices will not move. Just as the saying goes, "Buy the Rumor, Sell the news."