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Why the Earnings Surprise Streak Could Continue for KAR Auction Services (KAR)

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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 KAR Auction Services (KAR - Free Report) , which belongs to the Zacks Retail - Miscellaneous industry.

This used and salvaged vehicle auctioneer has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average surprise for the last two quarters was 7.30%.

For the last reported quarter, KAR Auction Services came out with earnings of $0.82 per share versus the Zacks Consensus Estimate of $0.79 per share, representing a surprise of 3.80%. For the previous quarter, the company was expected to post earnings of $0.74 per share and it actually produced earnings of $0.82 per share, delivering a surprise of 10.81%.

Price and EPS Surprise

With this earnings history in mind, recent estimates have been moving higher for KAR Auction Services. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the company is positive, which is a great sign of an earnings beat, especially when you combine this metric with its nice 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.

KAR Auction Services currently has an Earnings ESP of +3.44%, which suggests that analysts have recently become bullish on the company's earnings prospects. This positive Earnings ESP when combined with the stock's Zacks Rank #2 (Buy) indicates that another beat is possibly around the corner. We expect the company's next earnings report to be released on November 6, 2018.

Investors should note, however, that a negative Earnings ESP reading is not indicative of an earnings miss, but a negative value does reduce the predictive power of this metric.

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.




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