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Investment Ideas

We are in the middle innings of fourth quarter earnings season, and so far it has been pretty decent. Around two-thirds of the companies in the S&P 500 that have reported have delivered positive earnings surprises, with a median beat of +3.2%.

The beats have been fairly solid across most sectors too, with Auto, Tech, Consumer Staples and Utilities leading the way.

Don't Forget the Top Line

While earnings surprises may garner most of the attention, I'm much more impressed by a company that beats on both the bottom line and the top line. That's because earnings can often be "massaged" by management to clear the quarterly hurdle set by Wall Street. But revenue is generally much less susceptible (although not immune) to manipulation.

This might help explain why fewer companies have reported positive revenue surprises than earnings surprises this quarter. For instance, only 58% of companies have delivered positive revenue surprises this quarter, with a median beat of just 0.9%. However, this is still an improvement from the third quarter when less than 40% of companies beat on the top-line.

The Triple Play

Positive revenue and earnings surprises are great, but if management guidance is weak and/or if analysts still revise their earnings estimates lower, a stock can still be punished. The true winners from earnings season are those who can deliver the coveted "Triple Play":

  • A positive earnings surprise
  • A positive revenue surprise, and
  • Significant positive earnings estimate revisions

And as the well-documented "post-earnings announcement drift" shows, these blow out quarters are often handsomely rewarded by the market for several weeks after a company reports.

4 Triple Plays

So which companies have delivered the "Triple Play" this earnings season? I ran a screen in Research Wizard, and here are 4 of the top companies from the list:

Evercore Partners (EVR - Snapshot Report)

EPS Surprise: +56%
Revenue Surprise: +36%
4 Week Change in 2013 Consensus: +11%

Evercore Partners is an independent investment banking advisory firm. It is a Zacks Rank of 1 (Strong Buy).

Inter Parfums Inc. (IPAR - Snapshot Report)

EPS Surprise: +14%
Revenue Surprise: +2%
4 Week Change in 2013 Consensus: +6%

Inter Parfums operates in the fragrance business and manufactures, markets and distributes a wide array of fragrances and fragrance related products. It is a Zacks Rank of 1 (Strong Buy)

G&K Services Inc. (GK - Snapshot Report)

EPS Surprise: +13%
Revenue Surprise: +2%
4 Week Change in 2013 Consensus: +6%

G&K Services provides uniforms and facility services throughout North America. It is a Zacks Rank of 2 (Buy).

Synaptics Inc. (SYNA - Snapshot Report)

EPS Surprise: +46%
Revenue Surprise: +3%
4 Week Change in 2013 Consensus: +28%

Synaptics develops human interface solutions for many consumer electronics companies. It is a Zacks Rank of 1 (Strong Buy)

The Bottom Line

This earnings season has been decent, but these four companies each reported outstanding quarters and are well-positioned to run higher over the coming weeks.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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