PennyMac Financial (PFSI) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.
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 -- has this insight at its core.
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.
Consensus earnings estimates for the next quarter and full year have moved considerably higher for PennyMac, as there has been strong agreement among the covering analysts in raising estimates.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The company is expected to earn $1.45 per share for the current quarter, which represents a year-over-year change of +150%.
Over the last 30 days, the Zacks Consensus Estimate for PennyMac has increased 17.89% because two estimates have moved higher compared to no negative revisions.
Current-Year Estimate Revisions
The company is expected to earn $5.28 per share for the full year, which represents a change of +7.98% 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 14.78% higher.
Favorable Zacks Rank
Thanks to promising estimate revisions, PennyMac currently carries 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 12.8% 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.