Q3 earnings season has begun and though it won’t
officially kick off until next week with the results of Alcoa, we are already
live and trading candidates.
We are expecting further deterioration in top line
(revenue growth) amidst margins that are already quite generous. But even though analysts are expecting the
weakest quarterly earnings growth since 2009 (-3.4% earnings growth), it might actually
bode well for stock prices. Low expectations may leave more room for positive surprise
and upside rallies in stocks that still remain relatively inexpensive from a
price to earnings perspective.
We have a total of 16 companies reporting results this
week, including five S&P 500 companies. Expectations for the third quarter
remain quite low, with total earnings expected to drop 3% from the same period
last year. This growth expectation reflects a 2.4% drop in total revenues and a
10-basis point expansion in net margins.
Zacks Earnings ESP
ESP is Zacks’ proprietary methodology for determining which stocks have the
best chance to surprise with their next earnings announcement. The Earnings ESP
shows the percentage difference between the Most Accurate Estimate and the
Zacks ESP helps predict earnings surprises to the upside and downside; the
greater the ESP (positive or negative) the greater the likelihood for a
use ESP to help quantify the conviction of the analysts for a surprise and
stack the odds in my favor when I combine it with other measurements and
can work for bullish potential surprises (positive ESP) as well as bearish
surprises (negative ESP).
Family Dollar (FDO) is a Zacks Rank 3 stock with a
positive earnings ESP of 3% for the current quarter; the Zacks Consensus is for
a profit of 75 cents in Q3. Recent data
show consumers still being frugal with their money, but stable; companies like Family
Dollar and its low cost options (merchandise at
prices from under $1 to $10) remain successful in luring budget-constrained
consumers amidst the fragile economic recovery.
Shares have been building strength, but remain far below
the past year’s high of almost $75.
– Family Dollar report earnings on October 3rd
Monsanto (MON - Analyst Report) is a Zacks Rank 2 stock with a positive
earnings ESP of 5.75% for the current quarter; the Zacks Consensus is for a
loss of 44 cents.
While this quarter may register a loss for the company,
analysts are expecting strength in the quarter and solid 2012 earnings of
$3.72. Revenue should be driven by the drought
in the U.S. and poor crop yields overseas.
Farmers will need high quality seed and fertilizers to get their yields
up to par. Monsanto has reported strong
earnings lately, beating estimates 4 out of the last 5 quarters..
– Monsanto report earnings on October 3rd
Lindsay Corp (LNN - Analyst Report) is a Zacks Rank 2 stock with a
positive earnings ESP of 3% for the current quarter. The Zacks consensus estimate is for Q3 EPS of
$0.75, with the most accurate estimate at $0.77. Lindsay manufactures and markets irrigation
equipment used by farmers to increase or stabilize crop production while
conserving water, energy, and labor.
Lindsay also owns Barrier Systems Inc for movable
barriers/medians you’d see on a highway reducing traffic congestion among other
roadway equipiment. They also are a
contract manufacturer for parts or complete goods for such firms as John Deere,
General Electric and Case New Holland.
With the ongoing drought, chances are that Lindsay’s
products are in high demand.
– Lindsay Corp reports earnings on October 11th
Earnings a Step Further
the ESP method sounds intriguing to you for improving
your portfolio performance, you should check out Zacks Whisper Trader.
Not only do I utilize Earnings ESP but I also factor in
several critical data sets to create the “secret sauce” I use to
than 80% accuracy in identifying positive earnings surprises… before
Senior Equities Strategist, Jared A Levy, is the editor
of Whisper Trader and can show you how to use the power of Zacks Earnings ESP
and earnings surprises for timely, steady gains.
Learn more about Whisper Trader now