As I write this, the markets are pulling back, awaiting earnings from Alcoa (AA - Analyst Report - Zacks Rank 3 ) and
Yum! Brands (YUM - Analyst Report - Zacks Rank 3); both reports are due out this evening after the
close. The earnings tone and forecasts set by these two
companies will be key as they both have far reaching business that touch heavy industry,
small business and the consumer.
Market sentiment remains cautiously bullish
with many of the big sell side firms still looking for a big correction. Goldman
Sachs reiterated their bearish
sentiments today, with an S&P 500 target of 1250 in 2012. With over 140 companies reporting
results this week, we should begin to get a shape of the future of earnings fairly quickly.
If we begin to see major downward revisions
to FY2013 estimates, then one would expect commensurate corrections in the S&P
500 to account for those revisions.
There will be always be standouts in
every earnings season and the goal of the Zacks ESP is to highlight those
companies with an elevated chance of beating the expectations.
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
Consensus.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 surprise.I 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 statistics.This can work for bullish potential surprises
(positive ESP) as well as bearish surprises (negative ESP).
Bullish ESP StocksTake Two Interactive (TTWO - Snapshot Report)
a Zacks Rank 3 stock
with a positive earnings ESP of 80% for the current quarter; the Zacks
Consensus is for a loss of 20 cents in Q3 and a most accurate forecast
loss of only 4 cents. On October 3rd, Piper
Jaffray lifted its share target and noted several postives in the
stock's fundamentals (TTWO is trading at only 6.8 times forward
Analysts there are looking for TTWO to come in at the high end of
estimates. Their new game, “Enemy
Unknown” just because available in the U.S.
It’s been a tough year
for TTWO; shares tumbled more than 50% to a low of $7.40, but have since recovered just below the $11.00 level.
– Take Two Interactive
reports earnings on October 24thU.S. Steel (X - Analyst Report)
is a Zacks Rank 3 stock
with a positive earnings ESP of 68.75% for the current quarter; the Zacks
Consensus is for a profit of 2 cents in the third quarter.
Given the improvements
we have seen in U.S. economic data, U.S. Steel may seen unexpected strength in
the quarter. Shares are close to lows
only seen in the 2009 crash and before in 2004.
– U.S. Steel reports
earnings on October 23rd
USG Corporation (USG - Snapshot Report)
is a Zacks Rank 3 stock
with a positive earnings ESP of 41.46% for the current quarter. The Zacks
consensus estimate is for a Q3 loss of $0.11, with the most accurate estimate
You might buy your home
from Toll Brothers, Lennar or Ryland Homes, but many of the support and
finishing materials used to build those homes most likely come from USG. Everything from drywall,
joint compound and corner molding to
backer boards for your tile and even roofing material are produced by USG.
New home sales have been
steadily growing and the industry’s strength was confirmed by several home
builders last quarter and confirmed by government sales data.
Given the trends, it
could be a strong quarter for USG.
– USG Corp reports
earnings on October 18th
Take Earnings a Step
If 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
achieve better than 80% accuracy in identifying positive earnings surprises…
before they’re reported.
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
Learn more about Whisper Trader