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Can Diamond Foods (DMND) Surprise This Earnings Season?

RAD DMND FIVE

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Diamond Foods, Inc. (DMND - Analyst Report) is set to report first-quarter fiscal 2014 results on Dec 5. Last quarter, it posted a strong positive surprise. Let us see how things are shaping up for this announcement.

Growth Factors in the Past Quarter

Diamond Foods cost containment and operational initiatives have proved successful. The company’s turnaround strategies such as improving price realization, lowering underperforming SKUs and reducing dependency on discounting have started producing desirable results, as evident from improved margins and earnings per share in fourth-quarter fiscal 2013. Moreover, Diamond Foods expects future results to depict more sustained growth of its brands, arising from product innovation and differentiation, improved cost structure and rebuilding of healthy relationships with walnut suppliers.

Earnings Whispers?

Our proven model does not conclusively project Diamond Foods as likely to beat earnings this quarter. A stock needs to have both positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimates. However, that is not the case here due to the following factors:

Zacks ESP: ESP for Diamond Foods is 0.00% since the Most Accurate Estimate stands at 17 cents per share, which is in line with the Zacks Consensus Estimate.

Zacks Rank #1 (Strong Buy): Diamond Foods’ Zacks Rank #1 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into earnings announcement, especially when the company is undergoing negative estimate revisions.

Other Stocks to Consider

Diamond Foods is not the only firm we are looking up to this earnings season. Our model shows that the following stocks have the right combination to post an earnings beat:

Omega Protein Corp. with Earnings ESP of +16.00% and a Zacks Rank #1 (Strong Buy)

Five Below, Inc. (FIVE - Snapshot Report) with Earnings ESP of +25.00% and a Zacks Rank #2 (Buy)

Rite Aid Corp. (RAD - Analyst Report) with Earnings ESP of +25.00% and a Zacks Rank #3 (Hold)

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