Expectation Arbitrage in Q4 Earnings: The Size of the Surprise

The post-earnings moves tell the real story. For Palantir, the stock's 10% jump signals a significant expectation gap. The market was clearly looking for a beat, but the magnitude of the outperformance-revenue surging 70% and adjusted EPS rising 79%-far exceeded that. This wasn't just a good report; it was a re-rating event. The whisper number for a 6% revenue beat and 9% EPS beat was met and then crushed, with guidance also raised. The stock's recent 12% sell-off had likely priced in fears of disruption, making the actual results a welcome surprise.

Cardinal Health's reaction was the opposite. Its 1.3% stock rise on a 1.2% revenue beat and 11.2% EPS beat suggests the outperformance was largely in the price. The numbers were solid, but not transformative. The market had already baked in strong growth, given the company's 18.8% year-on-year sales surge and the guidance raise. In this setup, beating expectations by a few percentage points wasn't enough to spark a major rally. The move was a classic "sell the news" reaction to a report that met, but didn't exceed, a high bar.

Boot Barn's muted move followed a similar script. The stock saw little reaction on in-line revenue and in-line GAAP EPS. The standout positive surprise was the 14.4% beat in adjusted EBITDA. This implies the market was focused on the top-line and bottom-line profit metrics, both of which were met. The EBITDA beat was a hidden strength, but it wasn't enough to move the needle when the headline numbers were already on target. The setup was one of low surprise, not high expectation.

The bottom line is that the market's pricing dictated the reaction. Palantir's jump was a reward for a massive beat, while the other two stocks moved only on the margin because the beat was already priced in.

The Expectation Gap: Beat vs. Raise

The core earnings print and forward guidance reveal a clear hierarchy of surprise. For Palantir, the numbers were strong, but the stock's 10% pop shows the market was pricing in a much smaller beat. The company posted Q4 revenue of $1.4 billion and adjusted EPS of $0.25, beating estimates by 6% and 9% respectively. Yet the real catalyst was the guidance. Its first-quarter revenue guidance of $1.5 billion and full-year outlook of roughly $7.2 billion both cleared analyst expectations. This beat-and-raise combo, especially after a recent 12% sell-off, signaled a reset in the forward view. The market had priced in disruption fears; the results and raised targets priced in a stronger AI-driven growth trajectory.

Cardinal Health delivered a solid beat, but the stock's modest 1.3% rise suggests the outperformance was largely in the price. The company reported Q4 revenue of $65.63 billion, a 1.2% beat, and adjusted EPS of $2.63, an 11.2% beat. The standout was the adjusted EBITDA beat of 10.7%. Yet management's raised full-year adjusted EPS guidance to $10.25 was only a 5.1% increase. In this setup, meeting the top-line and bottom-line expectations with a modest guidance bump wasn't enough to spark a rally. The whisper number had already baked in strong growth, given the 18.8% year-on-year sales surge. The report met, but didn't exceed, a high bar.

Boot Barn's results were the most in-line, with its adjusted EBITDA beat being the lone standout surprise. The company posted revenue of $705.6 million and GAAP EPS of $2.79, both essentially in-line with estimates. The 14.4% beat in adjusted EBITDA of $155.2 million was the positive surprise, highlighting operational efficiency. However, the stock saw little reaction because the headline numbers were already on target. The guidance for next quarter was slightly above estimates, but not a transformative raise. The expectation gap here was narrow; the market had priced in the growth story, and the report simply confirmed it.

The bottom line is that meaningful surprise requires beating expectations on both the print and the forward view. Palantir delivered that with a beat-and-raise. Cardinal Health and Boot Barn delivered solid beats, but the market had already priced in their growth, leaving little room for a positive surprise.

The Guidance Reset: Shifting the Consensus

The market's reaction to earnings often hinges more on what management says about tomorrow than what it reported about yesterday. Forward guidance is the tool that resets the consensus, and in this quarter, it was the key differentiator.

For Palantir, the raised full-year revenue outlook of roughly $7.2 billion was a major guidance reset. That figure cleared analyst expectations of about $6.3 billion. In a market that had recently priced in fears of disruption and a 12% sell-off, this forward-looking beat provided a powerful justification for the stock's 10% pop. It signaled that the AI-driven growth trajectory was not just a short-term story but a durable, higher-level path. The raised first-quarter guidance of $1.5 billion further cemented this new, elevated baseline.

Cardinal Health's guidance also provided a positive catalyst, though it was more incremental. The company raised its full-year adjusted EPS guidance to $10.25 at the midpoint, a 5.1% increase. This move came on top of a solid Q4 beat, but it was the forward view that likely mattered most. Given the company's 18.8% year-on-year sales surge, the market had already priced in strong growth. The guidance raise, while modest, confirmed the sustainability of that momentum and provided a tangible target for the coming year. It was enough to support a small stock gain, but not a major re-rating.

Boot Barn's guidance, by contrast, offered no new positive surprise. The company's Q1 revenue guidance of $530 million at the midpoint was above estimates, but its full-year EPS guidance at the midpoint was roughly in line. In a quarter where the headline numbers were already on target, this forward view simply maintained the status quo. It provided no reason for the stock to move, as the market had already priced in the growth story and saw no reason to adjust its expectations higher.

The bottom line is that raised expectations can be more powerful than past results. Palantir's guidance reset the bar higher, justifying a rally. Cardinal Health's modest raise confirmed a strong trend. Boot Barn's in-line guidance left the consensus unchanged. In the game of expectations, it's the forward view that moves the needle.

Catalysts and Risks: What to Watch Next

The post-earnings pop is just the start. The real test for each stock is whether the raised expectations can be met. For Palantir, the key risk is execution on its new $7.2 billion full-year target. The stock's 10% jump after a recent 12% sell-off shows the market is rewarding a reset in the forward view. But that valuation now must support a much higher growth trajectory. The company's domestic sales, which surged 137% last quarter, need to sustain that pace. Any stumble in converting its AI investments into consistent revenue will quickly close the expectation gap that just opened.

Cardinal Health faces a different challenge. Its risk is sustaining its 19% non-GAAP EPS growth while its top-line remains flat. The company raised its full-year EPS guidance to a range of $9.30 to $9.50, a modest increase. Yet, this growth is being driven by operational efficiency and cost discipline, not top-line expansion. The market had already priced in strong profit growth, so the guidance raise was a confirmation, not a surprise. The vulnerability here is that this momentum must be backed by tangible operational wins, like its recent acquisition of Solaris Health, to justify the stock's current level. If execution falters, the flat revenue could become a red flag.

For Boot Barn, the catalyst is clear: converting its aggressive expansion plan into margin expansion. The stock's premium depends on the effectiveness of its plan to open 65 to 70 new stores in fiscal 2026. The company already showed operational strength last quarter with a 210-basis-point merchandise margin expansion and a 23% increase in earnings per share. The risk is that the costs of rapid store growth and potential tariff impacts could pressure those margins. The company's warning about an $8 million incremental cost from tariffs in the second half of the fiscal year is a tangible headwind. The stock will need to see that new store sales ramp up quickly to offset these frictions and deliver on its raised earnings guidance.

The bottom line is that each stock's recent move is a bet on the future. Palantir's bet is on AI-driven growth, Cardinal Health's on operational efficiency, and Boot Barn's on disciplined expansion. The coming quarters will reveal whether the raised expectations are justified or vulnerable to a "sell the news" correction.