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We are well past the halfway mark for third quarter earnings season with results in from 73% of companies in the S&P 500. Overall, it has been a decent quarter. A solid 67% of companies have beaten earnings with a median surprise of 2.6%, and earnings growth is up 4.3% year-over-year.

More than anything though, the healthy beat ratio this quarter is a testament to managements' ability to "under promise and over deliver". Earnings estimates came down considerably in the months leading up to Q3 earnings season, so it shouldn't be a big surprise that companies can step over the low hurdle they set for themselves.

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 come in a penny or two ahead of consensus. But revenue is generally much less susceptible (although not immune) to manipulation.

So far in Q3, just 53% of companies have beaten expectations on the top-line, while revenue is up 2.8% year-over-year. But this isn't alarming - soft revenues have been a recurring theme in recent quarters.

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 get 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:

Nu Skin Enterprises (NUS - Snapshot Report)

EPS Surprise: +27%
Revenue Surprise: +14%
4-Week Change in 2013 Consensus: +13%
4-Week Change in 2014 Consensus: +16%

Nu Skin Enterprises is a global direct selling company that develops and distributes personal care products and nutritional supplements around the globe. The company delivered a solid "beat and raise" quarter on October 22, prompting a flurry of positive estimate revisions from analysts. It is a Zacks Rank #1 (Strong Buy) stock.

Encore Wire (WIRE - Snapshot Report)

EPS Surprise: +47%
Revenue Surprise: +6%
4-Week Change in 2013 Consensus: +13%
4-Week Change in 2014 Consensus: +13%

Encore Wire manufactures copper electrical wire and cable for residential and commercial use. The company reported significantly better-than-expected third quarter earnings on October 24 and is a Zacks Rank #1 (Strong Buy) stock.

Natus Medical (BABY - Snapshot Report)

EPS Surprise: +58%
Revenue Surprise: +6%
4-Week Change in 2013 Consensus: +23%
4-Week Change in 2014 Consensus: +20%

Natus Medical provides healthcare products used for the screening, detection, treatment, monitoring and tracking of common medical ailments in newborn care, hearing impairment, neurological dysfunction, epilepsy, sleep disorders, and balance and mobility disorders. The company reported its 4th consecutive double-digit positive earnings surprise on October 24. It is a Zacks Rank #1 (Strong Buy) stock.

Gentex (GNTX - Snapshot Report)

EPS Surprise: +15%
Revenue Surprise: +4%
4-Week Change in 2013 Consensus: +12%
4-Week Change in 2014 Consensus: +24%

Gentex is an automotive supplier that makes automatic-dimming rearview mirrors and camera-based lighting-assist and driver-assist systems. Analysts revised their estimates significantly higher for Gentex after it delivered its 5th consecutive earnings beat on October 22. It is a Zacks Rank #1 (Strong Buy) stock.

The Bottom Line

Overall, third quarter earnings season has been decent so far. But these four companies each delivered outstanding results and are well-positioned to run higher over the coming weeks.

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

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