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Earnings ESP for the Coming Week

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As my good friend and Zacks Research Director Sheraz Mian noted in his comments earlier this week, we have entered into the last “major” week of earnings of the S&P 500.  

So far, total earnings growth for the roughly 320 companies that have already reported are up 5.3% year over year, about 2/3rds of them beating expectations with a median surprise of 2.7%.   While that seems like a positive, there are some “details” that we need to be aware of.

If you look back just one quarter (Q1) before the most recent downward analyst revisions, this quarter’s earnings results would have actually been about 4% lower than expectations. 

Top line revenue is also lower on average than it was in the year ago period which is an indication that overall sales of goods and services are down.  That said, there are some companies that are truly surprising the markets to the upside and offering bullish outlooks for the coming year; those companies are being rewarded with huge gains.

We saw this type of action in Netquite last week, which was one of my selections for my Whisper Trading Service.

It’s fair to say that the most recent earnings season is mediocre at best, but being that expectations were ridiculously low, the markets are at least remaining stable.  It’s also safe to assume that the past week’s bullish action can be partially attributed to strong, supportive words from the likes of Mario Dragi and Mr Juncker on the stability of the Euro Zone by any means necessary. 

The US markets are also looking to the Fed for additional QE here, but I think that our European friends may have bought the Fed another month or two until they enact any further stimulus.  We will see later today if that thesis holds true.

About Zacks Earnings ESP
Earnings ESP is Zacks’ proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement. The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus.

The Zacks ESP helps predict earnings surprises to the upside and downside; the greater the ESP (positive or negative) the greater the likelihood for a surprise. 

I use ESP to help quantify the conviction of the analysts for a surprise and stack the odds in my favor when I combine it with other measurements and statistics.

This can work for bullish potential surprises (positive ESP) as well as bearish surprises (negative ESP).

Let’s check out a few bullish ESP candidates that report over the next week or so:

Bullish ESP Stocks
Sunoco (SUN) - is a Zacks Rank 3 stock with an earnings ESP of 25% for Q2.  Their FY2013 ESP is 7%.  Sunoco does have some weakness in their Q3 and FY2012 ESPs, but hopefully a beat in this quarter and longer term strength will support the shares.

The Zacks consensus estimate is for 47 cents of income this quarter, with the most accurate estimate at 58 cents.  Expectations may be lower because they have missed analysts expectations for 3 of the last 4 quarters. 

Sunoco, Inc. is principally a petroleum refiner and marketer with interests in cokemaking. Sunoco's petroleum refining and marketing operations include the manufacturing and marketing of a full range of petroleum products, including fuels, lubricants and petrochemicals, and the transportation of crude oil and refined products. These operations are conducted principally in the eastern half of the United States

– Sunoco reports earnings on August 2nd AMC (after market close).

Read Analyst Details Here

PHH Corp  - is a Zacks Rank 2 stock with a Q2 earnings ESP of 22%.  The Zacks consensus estimate is for Q2 earnings of $0.82, with the most accurate estimate at $1.00.  PHH Corp has exceeded analysts’ expectations by an average of 24% over the past four quarters.

Analyst momentum also looks bullish for the current and next quarters as well as FY2012 and FY2013

PHH Corp is a leading outsource provider of mortgage and vehicle fleet management services. It is the sixth largest retail originator of residential mortgages in the United States and the second largest fleet management services provider in the United States and Canada. – PHH reports earnings on August 7th AMC

Read Analyst Details Here

FreightCar America (RAIL - Free Report) - is a Zacks Rank 2 stock with a Q2 earnings ESP of 23%.  The Zacks consensus estimate is for Q2 EPS of $0.57, with the most accurate estimate at $0.70.  FreightCar has reported two strong earnings reports back to back, more than doubling estimates both times.  In Q32011, they did experience a major miss and reported a 20 cent loss versus Zacks estimates for a 3 cent profit. 

Analyst momentum is mixed in FreightCar and Avondale partners recently reduced their estimates for the stock in Q2 to 57 cents.   In Q3 as well  FY2012 and 2013, Avondale dropped their estimates below the Zacks consensus.  I think it’s safe to say that expectations are low.  RAIL shares has responded positively to the last 3 earnings reports.

FreightCar America, Inc. manufactures railroad freight cars, with particular expertise in coal-carrying railcars. In addition to coal cars, FreightCar America designs and builds flat cars, mill gondola cars, intermodal cars, coil steel cars and motor vehicle carriers. It is headquartered in Chicago, Illinois and has manufacturing facilities in Danville, Illinois, Roanoke, Virginia and Johnstown, Pennsylvania.

– FreightCar America reports earnings on August 6th BMO (before market open).

Read Analyst Details Here

If this method sounds intriguing to you for improving your portfolios, consider the Zacks Whisper Trader service. Not only do I use Earnings ESP but I also include some other critical factors to create the “secret sauce” I use to achieve 77.96% accuracy in identifying positive earnings surprises … before they’re reported.

Learn more about Whisper Trader now.

Senior Equities Strategist, Jared Levy, is the editor of Whisper Trader and can show you how to use the power of Zacks Earnings ESP and earnings surprises for timely, steady gains.


In-Depth Zacks Research for the Tickers Above

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