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Why the Earnings Surprise Streak Could Continue for Ross Stores (ROST)

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If you are looking for a stock that has a solid history of beating earnings estimates and is in a good position to maintain the trend in its next quarterly report, you should consider Ross Stores (ROST - Free Report) . This company, which is in the Zacks Retail - Discount Stores industry, shows potential for another earnings beat.

When looking at the last two reports, this discount retailer has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 3.84%, on average, in the last two quarters.

For the most recent quarter, Ross Stores was expected to post earnings of $1.01 per share, but it reported $1.04 per share instead, representing a surprise of 2.97%. For the previous quarter, the consensus estimate was $1.06 per share, while it actually produced $1.11 per share, a surprise of 4.72%.

Price and EPS Surprise

With this earnings history in mind, recent estimates have been moving higher for Ross Stores. 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.

Ross Stores currently has an Earnings ESP of +2.32%, 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 20, 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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