We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Looking for Earnings Beat? Buy These 5 Top-Ranked Stocks
Read MoreHide Full Article
Key Takeaways
Top-ranked ALL, W, BILL, TWLO and CRBU show strong potential to deliver earnings beats this season.
Positive Earnings ESP, high Zacks Rank and surprise history boost the odds of upside earnings surprises.
Strong earnings beats often fuel stock gains, making these five names worth watching before results.
It is not surprising that before an earnings season, every investor looks for stocks that can beat market expectations. This is because investors always try to position themselves ahead of time and look to tap stocks that are high-quality in nature.
In this regard, we ran a screener that yielded stocks The Allstate Corporation (ALL - Free Report) , Wayfair (W - Free Report) , BILL Holdings Inc. (BILL - Free Report) , Twilio (TWLO - Free Report) and Caribou Biosciences (CRBU - Free Report) as the likely winners on the earnings beat potential.
Why Is a Positive Earnings Surprise So Important?
Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations. After all, a 20% earnings rise (though apparently looks good) doesn’t tell you if earnings growth has been exhibiting a decelerating trend.
Also, seasonal fluctuations sometimes come into play. If a company’s Q1 is seasonally weak and Q4 strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.
On the other hand, after much brainstorming and analysis of companies’ financials and initiatives, Wall Street analysts project earnings of companies. They in fact club their insights and a company’s guidance when deriving an earnings estimate.
Thus, outperforming that estimate is almost equivalent to beating the company’s own expectation as well as the market perception. And if the margin of earnings surprise is big, it typically drives the stock higher right after the release. Thus, more than anything else, an earnings surprise can push a stock higher.
How to Find Stocks that Can Beat?
Now, finding stocks that have the potential to beat on the bottom line may be investors’ dream but not an easy job. One way to do this is to look at the earnings surprise history of the company.
An impressive track record in this regard generally acts as a catalyst in sending a stock higher. It indicates the company’s ability to surpass estimates. And investors generally believe that the company will apply the same secret sauce to execute yet another earnings beat in its next release.
The Winning Strategy
In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.
Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again.
Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slightly higher by setting the average earnings surprise for the last four quarters at 20%.
Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we place a few other criteria that push up the chance of a positive surprise.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through.
Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model.
In order to zero in on those that have long-term growth potential and high trading liquidity, we have added the following parameters too:
Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.
Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.
A handful of criteria has narrowed down the universe from over 7,700 stocks to only 11.
Here are five out of 11 stocks:
Allstate: The Zacks Rank #1 company is the third-largest property-casualty (P&C) insurer and the largest publicly held personal lines carrier in the United States. You can see the complete list of today’s Zacks #1 Rank stocks here.
The average earnings surprise of ALL for the past four quarters is 45.34%.
Wayfair: The Zacks Rank #1 company is an online seller of home goods products, consisting of furniture and home decor.
The average earnings surprise of W for the past four quarters is 21.51%.
BILL Holdings: The Zacks Rank #1 company primarily serves small and midsize businesses through its AI-powered financial operations platform that connects customers with their suppliers and clients.
The average earnings surprise of BILL for the past four quarters is 19.82%.
Twilio: Twilio provides a cloud-based customer engagement platform that enables developers and businesses to build, scale and operate real-time communications within software applications. The company currently has a Zacks Rank #1.
The average earnings surprise of TWLO for the past four quarters is 13.95%.
Caribou Biosciences: This is a clinical-stage CRISPR genome-editing biopharmaceutical company. It has a Zacks Rank #2.
The average earnings surprise of CRBU for the past four quarters is 20.08%.
View the Zacks #1 Rank List
Image: Shutterstock
Looking for Earnings Beat? Buy These 5 Top-Ranked Stocks
Key Takeaways
It is not surprising that before an earnings season, every investor looks for stocks that can beat market expectations. This is because investors always try to position themselves ahead of time and look to tap stocks that are high-quality in nature.
In this regard, we ran a screener that yielded stocks The Allstate Corporation (ALL - Free Report) , Wayfair (W - Free Report) , BILL Holdings Inc. (BILL - Free Report) , Twilio (TWLO - Free Report) and Caribou Biosciences (CRBU - Free Report) as the likely winners on the earnings beat potential.
Why Is a Positive Earnings Surprise So Important?
Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations. After all, a 20% earnings rise (though apparently looks good) doesn’t tell you if earnings growth has been exhibiting a decelerating trend.
Also, seasonal fluctuations sometimes come into play. If a company’s Q1 is seasonally weak and Q4 strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.
On the other hand, after much brainstorming and analysis of companies’ financials and initiatives, Wall Street analysts project earnings of companies. They in fact club their insights and a company’s guidance when deriving an earnings estimate.
Thus, outperforming that estimate is almost equivalent to beating the company’s own expectation as well as the market perception. And if the margin of earnings surprise is big, it typically drives the stock higher right after the release. Thus, more than anything else, an earnings surprise can push a stock higher.
How to Find Stocks that Can Beat?
Now, finding stocks that have the potential to beat on the bottom line may be investors’ dream but not an easy job. One way to do this is to look at the earnings surprise history of the company.
An impressive track record in this regard generally acts as a catalyst in sending a stock higher. It indicates the company’s ability to surpass estimates. And investors generally believe that the company will apply the same secret sauce to execute yet another earnings beat in its next release.
The Winning Strategy
In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.
Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again.
Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slightly higher by setting the average earnings surprise for the last four quarters at 20%.
Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we place a few other criteria that push up the chance of a positive surprise.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through.
Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model.
In order to zero in on those that have long-term growth potential and high trading liquidity, we have added the following parameters too:
Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.
Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.
A handful of criteria has narrowed down the universe from over 7,700 stocks to only 11.
Here are five out of 11 stocks:
Allstate: The Zacks Rank #1 company is the third-largest property-casualty (P&C) insurer and the largest publicly held personal lines carrier in the United States. You can see the complete list of today’s Zacks #1 Rank stocks here.
The average earnings surprise of ALL for the past four quarters is 45.34%.
Wayfair: The Zacks Rank #1 company is an online seller of home goods products, consisting of furniture and home decor.
The average earnings surprise of W for the past four quarters is 21.51%.
BILL Holdings: The Zacks Rank #1 company primarily serves small and midsize businesses through its AI-powered financial operations platform that connects customers with their suppliers and clients.
The average earnings surprise of BILL for the past four quarters is 19.82%.
Twilio: Twilio provides a cloud-based customer engagement platform that enables developers and businesses to build, scale and operate real-time communications within software applications. The company currently has a Zacks Rank #1.
The average earnings surprise of TWLO for the past four quarters is 13.95%.
Caribou Biosciences: This is a clinical-stage CRISPR genome-editing biopharmaceutical company. It has a Zacks Rank #2.
The average earnings surprise of CRBU for the past four quarters is 20.08%.