“Does Thomson First Call really want an analyst’s best call?” asks Christopher Oster in today’s Wall Street Journal.

“The Boston research firm is one of the primary conduits of information from stock-research analysts to institutional and individual investors, providing one-stop shopping for research reports and earnings-estimate numbers. But at a time when analysts are under fire for meekly accepting the guidance of the companies they follow, a little-known First Call practice is discouraging analysts from warning investors about unpleasant trends.”

“Last week, Alice Schroeder, a property-casualty insurance analyst at Morgan Stanley, issued a report on Warren, N.J., insurer Chubb Corp., with an estimate for the company’s full-year earnings that was well below Chubb’s own forecast. Ms. Schroeder’s $2.60-a-share forecast was a full $2 below the company’s estimate of $4.60 because, she reasoned in her report, Chubb appeared likely to take charges later this year to boost asbestos-claims reserves and potentially uncollectible reinsurance.”

“But when Ms. Schroeder submitted her number to First Call, she was told to get in line with the rest of Wall Street or face having her estimates thrown out. ‘The majority of analysts covering Chubb Corp. have updated their estimates for the guidance to exclude any charges in 4q02,’ according to a note from First Call to Ms. Schroeder. ‘Please update your estimates on this basis.’ The consensus estimate: $4.57.”

“When Ms. Schroeder refused to budge, First Call first changed her numbers to exclude the charges and later dropped her estimates entirely.”

“For its part, First Call contends it is merely trying to provide earnings estimates that are consistent in terms of what items are included. Without such uniformity, the consensus numbers published by the company ‘are meaningless,’ says Chuck Hill, director of research at First Call.”

“But critics say that First Call, in its quest for statistical relevance, isn’t giving its subscribers what they need: the often unpleasant reality about a company’s prospects. For all the Sturm und Drang in congressional hearings and elsewhere over the need for improved corporate financial reporting and more-objective Wall Street research of companies, the dilemma over how Chubb’s earnings forecasts should be reported serves as a reminder of how little has changed in many quarters in response to collapsing investor confidence.”

“First Call, a unit of Toronto-based Thomson Corp., defends its earnings-estimate gathering process by pointing out it doesn’t set accounting practices, but merely excludes the expenses and gains from its earnings targets that a majority of the analysts who submit forecasts want excluded. The end product, Mr. Hill says, is a measure that is broadly accepted by a majority of the investment community.”