Stocks receiving upward earnings estimate revisions going into an earnings report can give an investor an extra shot of confidence to hold onto a stock, or even get in with a brand new position, as the probability of a positive earnings surprise increases.
This is especially true when the most accurate estimate is above the consensus estimate just days before a company reports.
An analyst must feel pretty confident about the numbers a company will report to stick his or her neck out like that. Moreover, when other analysts follow suit, it can be even more telling.
Stoneridge (SRI - Snapshot Report)
That's exactly what happened with Stoneridge. On May 3rd, 2013, their earnings estimates were being ratcheted up by analysts, sending it from a Zacks Rank #3 (Hold) to a Zacks Rank #2 (Buy) within days before their report.
On May 9th, their foreshadowing was right as SRI posted a 50.00% positive ESP surprise. Shortly thereafter, their earnings estimates increased even more in quick succession, as their Zacks Rank was upgraded once again to a Zacks Rank #1 (Strong Buy).
Prices, trying to keep up, surged as a result, gaining 52.95% in 7 short weeks. All while the S&P produced a lackluster 0.76% during that same time frame.
The Zacks Rank #1s (Strong Buys) and Zacks Rank #2s (Buys) have proven to outperform the market over the next 1-3 months time and time again. And the outperformance shown above is a great illustration of exactly what that means and how quickly Zacks Rank market-beating gains can add up.
Getting into a stock in front of an earnings report can be scary sometimes. But when you see a stock receiving upward earnings estimate revisions leading into a report, and accompanied by a positive Zacks Rank, the odds of success tilt more and more in your favor.
For those who still prefer to wait until after a company reports earnings to get into a new position, not to worry. Following a positive surprise, the best reports will give analysts plenty of reason to increase estimates, especially if a company raises their outlook.
And oftentimes, the move that follows a positive surprise and raised guidance (which means upward revisions and a top Zacks Rank) can be even more profitable than the surprise move itself.
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Disclosure: Performance information for Zacks portfolios and strategies are available at: http://www.zacks.com/performance.