We can’t get enough of earnings season here at Zacks! It’s like having Christmas four times a year. There are both pleasant surprises and huge disappointments as companies release their results to investors. And it also refreshes the data of our Zacks Rank. This earnings season has just begun, and we already have our first star…Netflix. So which company is going to be next?
That is the tough question. Earnings season is unpredictable. Its not just about finding companies that beat expectations. You need to find stocks that will rise -- maybe even soar – AFTER a strong report. One of the best places to look for these earnings superstars is Zacks’ EPS Growth, Revisions & Positive Surprises screen. As the name implies, this screen seeks out Zacks Rank #1s (Strong Buys) with positive surprises and upward earnings estimates. These stocks are the best positioned to outperform in the near and longer terms.
Below are three stocks that are on a roll when it comes to earnings. But remember, there are dozens of names that passed this screen’s criteria. So after reading these profiles, make sure to go to Zacks Premium to look up the other names and the parameters. If you’re not a ZP member, the beginning of earnings season is a great time to sign up.
Cypress Semiconductor (CY - Free Report)
Cypress Semiconductor is gearing up for its second-quarter report next Thursday (July 27th). Last time, the company crushed the Zacks Consensus Estimate by 300%! But this lofty surprise is NOT the most encouraging thing about the upcoming report. Instead, the most impressive aspect is that CY has a positive Earnings ESP of 11.11%, suggesting that it’s all set for another outperformance. The company is part of the Semiconductor – communications space, which is in the top 14% of the Zacks Industry Rank with the 37th spot out of 256. The industry is up more than 18% so far this year, which is pretty good…but not as good as CY’s nearly 27% advance.
In its first quarter, CY reported earnings per share of 8 cents, while the Zacks Consensus Estimate was only calling for 2 cents. The company had actually missed estimates in the preceding two quarters, but a longer-term view shows seven beats out of the last 10. And its huge surprises in the first quarter and last year’s second quarter means it still has an average beat of more than 83% over the past four. Non-GAAP revenues jumped over 25% from last year to $532 million, which also eclipsed our estimate of $509 million. CY’s strongest end market is Automotive, which performed very well in the quarter along with IoT (Internet of things).
CY expects second quarter revenues between $530 million and $560 million, which gives the company a terrific chance to surpass Zacks expectations of $530.9 million. We here at Zacks really appreciate the company’s advanced technology, new products momentum, increased customer wins and growth initiatives.
The Zacks Consensus Estimate for this year is at 44 cents per share, which has advanced about 4.8% in the past month. However, earnings are expected to soar nearly 82% next year to 80 cents. But to really see CY’s trajectory, it’s best to look over the past 3 months. From that angle, earnings estimates for this year and next have soared 25.7% and 17.6%, respectively.
Best Buy (BBY - Free Report)
With 18 consecutive quarters of positive earnings surprises, Best Buy (BBY - Free Report) has a well-established spot on this screen. It’s all the more noteworthy since this is a brick-and-mortar retailer in an increasingly e-commerce world. But BBY does have one important advantage…it is part of the Retail – Consumer Electronics space, which is in the top 1% of the Zacks Industry Rank with the third notch out of 256. Best Buy has advanced 32.5% year-to-date, which means it has outperformed its highly-ranked industry’s gain of nearly 27% in that time.
BBY last reported in late May and will report again in late August. In its fiscal first quarter, the company continued it’s more than four-year earnings surprise streak by posting 60 cents per share. The result was 50% better than the Zacks Consensus Estimate and 40% better than a year earlier. It has an average earnings surprise of nearly 34% over the past four quarters. Revenue of $8.53 billion also topped our expectations at $8.26 billion, while increasing 1% year-over-year.
For the current quarter (which ends this month), Best Buy set a range between 57 cents and 62 cents. At the time, Zacks was expecting 60 cents, but analysts have since raised the guidance by 3 cents. But the analysts didn’t stop there. Earnings estimates for this fiscal year and next have also improved since the report.
The Zacks Consensus Estimate for this fiscal year (ending January 2018) is at $3.87 per share, which marks a 4.3% advance over the past 2 months as 10 of 12 covering analysts boosted their expectations. No analysts lowered. Earnings for next fiscal year (ending January 2019) are currently expected to rise 7% to $4.14 per share. Similarly, eight of 11 covering analysts raised their estimates with no one lowering them.
Red Hat (RHT - Free Report)
Red Hat (RHT - Free Report) didn’t wait for earnings season to begin. The world’s leading provider of open source solutions reported its 15th straight positive earnings surprise late last month. The company also raised its fiscal 2018 guidance as demand for its foundational and cloud-enabling technologies is not expected to wane anytime soon. In fact, it has received increased commitments from its largest customers. RHT is up approximately 41.2% so far this year, which is well above the computer-software industry’s 23% advance in the same time. That space is in the top 38% of the Zacks Industry Rank with the 98th spot out of 256.
In the quarter, earnings per share of 40 cents were 17.7% (or 6 cents) better than the Zacks Consensus Estimate, bringing its four-quarter average surprise up to more than 11%. Revenues soared over 19% to $677 million due to strong subscription revenues and cross-selling of cloud-enabled technology. The Zacks Consensus Estimate was only expecting $647 million in revenue. RHT now expects revenue between $2.79 billion and $2.83 billion for the full year.
Speaking of this fiscal year (ending February 2018), the Zacks Consensus Estimate is at $1.88 per share, which is up 3.3% in the past 30 days. However, analysts are very encouraged by RHT’s future, especially after it reported a more than 40% jump in Application Development-related and other emerging tech revenue in its latest quarter. They expect earnings for next fiscal year (ending February 2019) to jump nearly 20% to $2.25, which is up more than 5% in the past month.
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