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Earnings Growth to Pick Up Steam in Q1: Top 5 Picks
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In the first quarter, total earnings are likely to increase 9.7% from the same period last year on 5.9% higher revenues, with Finance, Technology, Industrial Products, and Basic Materials expected to post double-digit growth in earnings. This will follow 7.4% earnings growth recorded in the fourth quarter of 2016 on 4.8% higher revenues, the best performance in nearly two years.
Notably, Q1 results are likely to see expedited earnings growth, as it is expected to gain momentum from the preceding quarter, showing significant improvement over the third quarter of 2016 (read more: Q1 Earnings Season Shows Broad-based Momentum).
Regardless of whether a company is a fledgling or established one, steady earnings growth entices all. But why is earnings growth important? This is simply because earnings are a measure of the money a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!
Better-than-expected earnings performances generally lead to a rally in the share price. In addition to actual earnings, expectations of earnings play a vital role in determining share price movement.
Earnings Estimates Determine Share Prices
We have often seen a decline in the stock price despite earnings growth and a rally in the price following an earnings decline. This is largely a result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to buy stocks that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
The Winning Strategy
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have added the following parameters:
Zacks Rank equal to 1 (Only Zacks' 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.) You can see the complete list of today’s Zacks #1 Rank stocks here.
5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth of 5% or more in the last reported fiscal).
% Change Q1 Estimates over the last 4 weeks greater than zero (stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks).
% Change F1 Estimates over the last 1 week greater than zero (Stocks that have seen their annual earnings estimates revised higher in the last 1 week.)
% Change F1 Estimates over the last 4 weeks greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 4 weeks).
The above criteria narrowed down the universe of around 7,902 stocks to only five. Here are the stocks:
Central Garden & Pet Co (CENT - Free Report) is a marketer and producer of branded products and distributor of third-party products in the pet and lawn and garden supplies industry in the U.S. The Zacks Consensus Estimate for its current year earnings increased 0.7% over the last 60 days. The company’s estimated earnings growth rate for this year is 11.1%, more than the Consumer Products - Discretionary industry’s expected gain of 4.5%.
Nucor Corporation (NUE - Free Report) manufactures steel and steel products. The Zacks Consensus Estimate for its current year earnings rose 19.8% over the last 60 days. The company’s estimated earnings growth rate for this year is 79.6%, way higher than the Steel - Producers industry’s projected addition of 33.1%.
Stanley Black & Decker, Inc. (SWK - Free Report) is a global provider of hand tools, power tools and related accessories, mechanical access solutions, such as automatic doors and commercial locking systems, electronic security and monitoring systems, healthcare solutions, engineered fastening systems, and products and services for various industrial applications. The Zacks Consensus Estimate for its current year earnings increased 3.6% over the last 60 days. The company, which belongs to the Manufacturing - Tools & Related Products industry, is expected to witness earnings growth of 9.9% this year.
Citizens Financial Group Inc (CFG - Free Report) is a retail bank holding company. The company operates through two segments: Consumer Banking and Commercial Banking. The Zacks Consensus Estimate for its current year earnings advanced 6.1% over the last 60 days. The company’s estimated earnings growth rate for this year is 25.4%, way higher than the Financial - Savings and Loan industry’s projected gain of 9.1%.
First Connecticut Bancorp Inc is a stock holding company. The company operates through its subsidiary, Farmington Bank (the Bank), which is a full-service community bank with branch locations throughout central Connecticut and western Massachusetts. The Zacks Consensus Estimate for its current year earnings surged 24.3% over the last 60 days. The company’s estimated earnings growth rate for this year is 33%, way higher than the Banks - Northeast industry’s anticipated rise of 9.8%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »
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Earnings Growth to Pick Up Steam in Q1: Top 5 Picks
In the first quarter, total earnings are likely to increase 9.7% from the same period last year on 5.9% higher revenues, with Finance, Technology, Industrial Products, and Basic Materials expected to post double-digit growth in earnings. This will follow 7.4% earnings growth recorded in the fourth quarter of 2016 on 4.8% higher revenues, the best performance in nearly two years.
Notably, Q1 results are likely to see expedited earnings growth, as it is expected to gain momentum from the preceding quarter, showing significant improvement over the third quarter of 2016 (read more: Q1 Earnings Season Shows Broad-based Momentum).
Regardless of whether a company is a fledgling or established one, steady earnings growth entices all. But why is earnings growth important? This is simply because earnings are a measure of the money a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!
Better-than-expected earnings performances generally lead to a rally in the share price. In addition to actual earnings, expectations of earnings play a vital role in determining share price movement.
Earnings Estimates Determine Share Prices
We have often seen a decline in the stock price despite earnings growth and a rally in the price following an earnings decline. This is largely a result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to buy stocks that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
The Winning Strategy
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have added the following parameters:
Zacks Rank equal to 1 (Only Zacks' 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.) You can see the complete list of today’s Zacks #1 Rank stocks here.
5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth of 5% or more in the last reported fiscal).
% Change Q1 Estimates over the last 4 weeks greater than zero (stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks).
% Change F1 Estimates over the last 1 week greater than zero (Stocks that have seen their annual earnings estimates revised higher in the last 1 week.)
% Change F1 Estimates over the last 4 weeks greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 4 weeks).
The above criteria narrowed down the universe of around 7,902 stocks to only five. Here are the stocks:
Central Garden & Pet Co (CENT - Free Report) is a marketer and producer of branded products and distributor of third-party products in the pet and lawn and garden supplies industry in the U.S. The Zacks Consensus Estimate for its current year earnings increased 0.7% over the last 60 days. The company’s estimated earnings growth rate for this year is 11.1%, more than the Consumer Products - Discretionary industry’s expected gain of 4.5%.
Nucor Corporation (NUE - Free Report) manufactures steel and steel products. The Zacks Consensus Estimate for its current year earnings rose 19.8% over the last 60 days. The company’s estimated earnings growth rate for this year is 79.6%, way higher than the Steel - Producers industry’s projected addition of 33.1%.
Stanley Black & Decker, Inc. (SWK - Free Report) is a global provider of hand tools, power tools and related accessories, mechanical access solutions, such as automatic doors and commercial locking systems, electronic security and monitoring systems, healthcare solutions, engineered fastening systems, and products and services for various industrial applications. The Zacks Consensus Estimate for its current year earnings increased 3.6% over the last 60 days. The company, which belongs to the Manufacturing - Tools & Related Products industry, is expected to witness earnings growth of 9.9% this year.
Citizens Financial Group Inc (CFG - Free Report) is a retail bank holding company. The company operates through two segments: Consumer Banking and Commercial Banking. The Zacks Consensus Estimate for its current year earnings advanced 6.1% over the last 60 days. The company’s estimated earnings growth rate for this year is 25.4%, way higher than the Financial - Savings and Loan industry’s projected gain of 9.1%.
First Connecticut Bancorp Inc is a stock holding company. The company operates through its subsidiary, Farmington Bank (the Bank), which is a full-service community bank with branch locations throughout central Connecticut and western Massachusetts. The Zacks Consensus Estimate for its current year earnings surged 24.3% over the last 60 days. The company’s estimated earnings growth rate for this year is 33%, way higher than the Banks - Northeast industry’s anticipated rise of 9.8%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector. Download it free »