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Why Kadant (KAI) Might be Well Poised for a Surge

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Kadant (KAI - Free Report) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this equipment supplier for the papermaking and paper recycling industries, should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Kadant, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The company is expected to earn $1.36 per share for the current quarter, which represents a year-over-year change of +24.77%.

Over the last 30 days, two estimates have moved higher for Kadant while one has gone lower. As a result, the Zacks Consensus Estimate has increased 11.17%.

Current-Year Estimate Revisions

The company is expected to earn $5.83 per share for the full year, which represents a change of +16.6% from the prior-year number.

The revisions trend for the current year also appears quite promising for Kadant, with three estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 10.63%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Kadant currently carries a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Kadant because of its solid estimate revisions, as evident from the stock's 20.7% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.

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