Earnings serve as a major indicator of a company’s profitability. This is the reason why, from top brass of any organization to research analysts, everyone is fascinated with earnings. Take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings!
Better-than-expected earnings more often than not lead to an increase in the share price. However, in addition to actual earnings, expectations of earnings play a significant role in influencing the share price.
Earnings Estimates & Stock Prices
On many occasions, companies have seen their share prices decline even after reporting earnings growth or for that matter a stock price surging following an earnings decline. This happens because of missing or beating estimates.
So, what are earnings estimates? It includes analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins, expenses and cost control. Earnings estimates also help an analyst use cash flow analysis to determine the fair value of a firm.
Thus, earnings estimates are a valuable tool for investors when deciding whether or not to buy a stock. It is imperative for an investor zeroing down to buy stocks with solid earnings growth to also make sure that their earnings estimates are on the rise.
Screening Parameters
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we added the following parameters:
Zacks Rank less than or equal to 2: Only Zacks' 'Buys' and 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off. You can see the complete list of today’s Zacks #1 Rank stocks here.
5-Year Historical EPS Growth (%) greater than X-Industry: Stocks that possess strong EPS growth history.
% Change EPS F(0)/F(-1) greater than or equal to 5: Companies that witnessed year-over-year earnings growth rate of 5% or more in the last reported fiscal.
% Change Q1 Estimates over the last 4 weeks greater than zero: Stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks.
% Change F1 Estimates over the last 1 week greater than zero: Stocks that have seen their annual earnings estimates revised higher in the last 1 week.
% Change F1 Estimates over the last 4 weeks greater than zero: Stocks that have seen their annual earnings estimates revised higher in the last 4 weeks.
The above criteria narrowed down the universe of over 7,685 stocks to only 4. Here are the stocks:
Burlington Stores, Inc. BURL operates as a retailer of branded apparel products in the United States. The company’s estimated earnings growth rate for this year stands at 29.1%.
Five Below, Inc. FIVE is a specialty value retailer in the United States. The company’s estimated earnings growth rate for this year is pegged at 25.1%.
ULTA Salon, Cosmetics & Fragrance, Inc. ULTA operates as a specialty retailer in the United States. The company’s estimated earnings growth rate for this year stands at 24.9%.
Apollo Commercial Real Estate Finance, Inc. ARI is a real estate investment trust. The company’s estimated earnings growth rate for this year is 5.2%.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance
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