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5 Companies with Triple-Digit Surprises and Strong Estimate Revisions Trends

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Choosing stocks can be a complicated affair at any time. And it can be more so when we have good news one day and uncertainty the next.

Something like we have seen this year, which started with euphoria surrounding the vaccine, followed by concerns related to component shortages and supply chain issues.

That was followed by price escalation and related input cost inflation, raising doubts about whether it would impact corporate profitability.

Then there was the Fed making sounds about rate hikes and tapering and concerns about low bond yields.

And finally, we had the Delta variant.

In between all this were two solid earnings seasons, strong indications of manufacturing expansion, lower unemployment rates, consistent evidence of strong demand across sectors and prolonged cash support for worst-affected segments of the economy. As a sideshow, we had Reddit investors driving momentum into the market, leading to a phenomenon that we now refer to as the meme stock craze. And finally, there was the rise and fall (and then increased confidence and recognition for) cryptocurrencies.

Inflation concerns entered the discussion somewhere in there, but they have been brushed aside as temporary, and in any case, supportive of the growth trends already evident elsewhere.

As things stand now, companies have proved their ability to navigate through all the uncertainties, just as you would expect in a really strong demand environment. And the only somewhat real concern is the Delta variant that could slow down the pace of growth if consumers or businesses turn more cautious.

But there’s no evidence of this actually happening. Yet.

So we may as well prep our portfolio for some big gains with a focus on diversification and big earnings surprises.

A big earnings surprise shows materially stronger-than-expected results, which means analysts are still too conservative, that they’re unable to grasp the full potential in the stock. So they keep raising their estimates until actual results come closer to expectations.

Which brings us to the second point that we should be considering. If a big earnings surprise is not followed by significant upward revision in estimates, it may be a one-time thing that happened during the quarter that analysts don’t expect will repeat in the next. But if strong results are also followed by a substantial increase in estimates, it indicates that they expect the trend to continue.

Since prices tend to move in tandem with earnings estimate revisions, this also means an upward trend in prices. Which is precisely what we are looking for.

Take Ralph Lauren Corporation (RL - Free Report) for example. This designer, marketer and distributor of apparel, footwear, accessories, home furnishings and other licensed product categories in North America, Europe, Asia and elsewhere is seeing some strong momentum.

As a result, it beat earnings estimates in the last quarter by 157.3%, which was followed by an 18.8% increase in the 2021 estimate and a 13.6% increase in the 2022 estimate.

While all regions were strong, it was the stronger-than expected reopening that led to triple digit growth in brick-and-mortar sales in both North America and Europe. Wholesale also grew triple-digits in these regions. Strength in Asia was driven by China mainly, and Korea as well. There was also significant margin expansion in digital sales, which were also up strong double-digits.

The results are indicative of the broader trends across the Zacks-classified Textile - Apparel industry and support the Zacks Industry Rank of 27 (top 11%).

The #1 (Strong Buy) ranked stock also has a value-growth-momentum (VGM) Score of B.  

SP Plus Corporation (SP - Free Report) is also a #1 ranked stock with a VGM Score of B.

This provider of professional parking, ground transportation, facility maintenance, security and event logistics services, as well as a host of other services to owners of office building complexes, shopping centers, sports complexes, hotels, hospitals and airports, belongs to the Consumer Services – Miscellaneous industry (top 44%). The industry is on a recovery mode, which should gather momentum as stimulus money comes to an end next month.

The company beat estimates by 133.3% in the last quarter, which was followed by a 40.2% increase in the 2021 estimate and a 12.6% increase in the 2022 estimate.

Like RL, the company benefited from the broader rollout of the vaccine and lifting of government restrictions, which also released some pent-up demand, particularly at airport and airline customers. The steady return of people to workplaces, retail centers and central business districts, as well as the increase in first-time car ownership and decrease in shared mobility and mass-transit usage are other positives.

The Container Store (TCS - Free Report) is a specialty retailer of general and customized storage and organization products in the United States. It sells component-based shelving and drawer systems for closets, kitchens, homes, offices and garages that are both designed and manufactured and sourced from third-parties.

In the last quarter, the Container Store retail business (TCS - Free Report) segment saw double-digit increase in both custom closets and other product categories. The Elfa International AB (Elfa) third-party segment also saw a double-digit increase, but wasn’t quite as strong as the other segment.  

As a result, its reported results beat the Zacks Consensus Estimate by 300.0% in the last quarter. The 2022 (ending March) estimate has jumped 34.0% since. The 2023 estimate is also up 39.1%.

The Consumer Products – Discretionary industry to which it belongs is at the top 28% of Zacks-classified industries. The relatively strong industry rank coupled with the #1 rank and VGM Score B are good enough to deliver strong upside potential (as has been seen historically).

The shares carry a Zacks Rank #1 and VGM Score B.

Carters, Inc. (CRI - Free Report) is the largest marketer of branded apparel and related products for babies, and young children in North America. t sells the products through leading department stores, national chains and specialty retailers, both domestically and internationally.

The Zacks Rank #1 company with VGM Score A belongs to the Shoes and Retail Apparel industry (top 11%).

In the last quarter it topped estimates by 131.9%. The 2021 and 2022 estimates are up 21.9% and 19.7% since.

The company saw strong double-digit sales growth across the U.S. Retail, U.S. Wholesale and International businesses with significant margin expansion in both Retail and International segments. Omnichannel sales were particularly strong as stores generated increased sales and also helped fulfill digital orders. Wholesale margins were lower however and the company continues to see some delays in the supply chain.

Bluegreen Vacations Holding Corporation (BVH - Free Report) markets and sells vacation ownership interests and manages resorts in leisure and urban destinations. It belongs to the Leisure and Recreation Services industry, which is in the top 47% of Zacks-classified industries.

The Zacks Rank #1 stock has a VGM Score B.

The lone analyst providing estimates on this stock remains highly conservative since the company beat the last quarter’s estimates by 244.4%. The 2021 estimate has jumped 91.5% since while the 2022 estimate jumped 44.4%.

In the last quarter, BVH attained pre-pandemic level sales (second quarter 2019). The strength in vacation ownership interest (VOI) sales was achieved with 10% lower guest tours, an indication of the level of demand. Additionally, new customers were 45% of system-wide VOI sales, a mix that reflected pre-pandemic levels that management believes will support net owner growth in the future. It’s also encouraging to note that all but one of its resorts have re-opened with an average occupancy rate of 86%. The strong results were attributed to its revamped and redesigned sales and marketing infrastructure. A slight concern is the rising rate of infections in Florida and Missouri, where it has most of its resorts.

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