PennyMac Financial (PFSI - Free Report) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.
Analysts' growing optimism on the earnings prospects of this mortgage banking and investment management company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For PennyMac, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
For the current quarter, the company is expected to earn $1.50 per share, which is a change of +138.1% from the year-ago reported number.
The Zacks Consensus Estimate for PennyMac has increased 27.23% over the last 30 days, as two estimates have gone higher compared to no negative revisions.
Current-Year Estimate Revisions
The company is expected to earn $4.51 per share for the full year, which represents a change of +74.13% from the prior-year number.
There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, two estimates have moved up for PennyMac versus no negative revisions. This has pushed the consensus estimate 15.07% higher.
Favorable Zacks Rank
The promising estimate revisions have helped PennyMac earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
PennyMac shares have added 5% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.