Earnings growth enthralls all, right from the top brass to research analysts. This is simply because if a company doesn’t make money, it won’t survive for long. Consider a company’s revenues over a given period of time, subtract the cost of production, and you have earnings.
This metric is also considered the most important variable in influencing the share price. But, expectations of earnings also play a significant role.
Earnings Estimates Determine Share Prices
We have often seen a decline in the stock price despite earnings growth and a rally in the price following an earnings decline. This is largely a result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinion on factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to buy stocks that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have added the following parameters:
Zacks Rank less than or equal to 2 (Only Zacks' 'Buys' and 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.)
5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth of 5% or more in the last reported fiscal).
% Change Q1 Estimates over the last 4 weeks greater than zero (stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks).
% Change F1 Estimates over the last 1 week greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 1 week).
% Change F1 Estimates over the last 4 weeks greater than zero (stocks that have seen their annual earnings estimates revised higher in the last 4 weeks).
The above criteria narrowed down the universe of around 7,839 stocks to only 13. Here are the top four stocks:
Comcast Corporation (CMCSA - Free Report) operates as a media and technology company worldwide. The company has a Zacks Rank #2 (Buy). The company’s estimated growth rate for this year is 18.4% compared with the Cable Television industry’s expected decline of 2.1%.
Enterprise Products Partners L.P. (EPD - Free Report) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. The company has a Zacks Rank #1 (Strong Buy). The company’s estimated growth rate for this year is almost 10% compared with the Oil and Gas - Production Pipeline - MLB industry’s projected rise of 0.6%.
HealthEquity, Inc. (HQY - Free Report) provides various solutions for managing health care accounts, health reimbursement arrangements, and flexible spending accounts for health plans, insurance companies, and third-party administrators in the United States. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 11.8% compared with the Medical Services industry’s expected increase of 8.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Pioneer Natural Resources Company (PXD - Free Report) operates as an independent oil and gas exploration and production company in the United States. The company has a Zacks Rank #2. The company’s estimated growth rate for this year is 44.4% compared with the Oil and Gas - Exploration and Production - United States industry’s projected decline of 5.9%.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance