Earnings growth is the highest priority for the top brass of any start-up or an established company. This is because if the company doesn’t make money, it won’t last long.
Study a company’s revenues over a given period of time, subtract the cost of production, and you have its earnings. This metric is also considered the most important variable influencing share price. But, expectations of earnings also play a significant role.
Earnings Estimates & Share Price Movements
Often, we have seen a decline in the stock price despite earnings growth and a rally in price following an earnings decline. This is largely the result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinion on factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool, while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to buy stocks that have historical earnings growth and are seeing a rise in quarterly and annual earnings estimates.
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have 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.)
5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth 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 around 7,839 stocks to only 23. Here are the top four stocks that stand out:
Applied Industrial Technologies AIT is a distributor of value-added industrial products. Applied Industrial Technologies currently has a Zacks Rank #1 (Strong Buy). AIT’s expected earnings growth rate for the current year is 10.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arch Capital Group ACGL offers insurance, reinsurance and mortgage insurance across the world. Arch Capital currently has a Zacks Rank #1. ACGL’s expected earnings growth rate for the current year is 27.9%.
Otter Tail OTTR is involved in the production, transmission, distribution and sale of electric energy. Otter Tail currently has a Zacks Rank #1. OTTR’s expected earnings growth rate for the current year is 67.4%.
Visa V operates as a payments technology company all over the world. Visa currently has a Zacks Rank #2 (Buy). Visa’s expected earnings growth rate for the current year is 25%.
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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.
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Visa Inc. (V) : Free Stock Analysis Report
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Arch Capital Group Ltd. (ACGL) : Free Stock Analysis Report
Otter Tail Corporation (OTTR) : Free Stock Analysis Report
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