Have you been searching for a stock that might be well-positioned to maintain its earnings-beat streak in its upcoming report? It is worth considering CDK Global (CDK - Free Report) , which belongs to the Zacks Computers - IT Services industry.
When looking at the last two reports, this provider of technology and marketing services to auto dealers has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 12.74%, on average, in the last two quarters.
For the most recent quarter, CDK Global was expected to post earnings of $0.84 per share, but it reported $0.85 per share instead, representing a surprise of 1.19%. For the previous quarter, the consensus estimate was $0.70 per share, while it actually produced $0.87 per share, a surprise of 24.29%.
Price and EPS Surprise
Thanks in part to this history, there has been a favorable change in earnings estimates for CDK Global lately. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the stock is positive, which is a great indicator of an earnings beat, particularly when combined with its solid Zacks Rank.
Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate could be as high as seven.
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.
CDK Global has an Earnings ESP of +0.24% at the moment, suggesting that analysts have grown bullish on its near-term earnings potential. When you combine this positive Earnings ESP with the stock's Zacks Rank #3 (Hold), it shows that another beat is possibly around the corner. The company's next earnings report is expected to be released on August 14, 2018.
When the Earnings ESP comes up negative, investors should note that this will reduce the predictive power of the metric. But, a negative value is not indicative of a stock's earnings miss.
Many companies end up beating the consensus EPS estimate, but that may not be the sole basis for their stocks moving higher. On the other hand, some stocks may hold their ground even if they end up missing the consensus estimate.
Because of this, it's really important to check a company's Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.