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Why Paylocity (PCTY) is Poised to Beat Earnings Estimates Again

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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 Paylocity (PCTY - Free Report) , which belongs to the Zacks Internet - Software industry.

This provider of cloud-based payroll and human-resources software services has an established record of topping earnings estimates, especially when looking at the previous two reports. The company boasts an average surprise for the past two quarters of 28.74%.

For the most recent quarter, Paylocity was expected to post earnings of $0.29 per share, but it reported $0.36 per share instead, representing a surprise of 24.14%. For the previous quarter, the consensus estimate was $0.27 per share, while it actually produced $0.36 per share, a surprise of 33.33%.

Price and EPS Surprise

Thanks in part to this history, there has been a favorable change in earnings estimates for Paylocity lately. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the stock is positive, which is a great indicator of an earnings beat, particularly when combined with its solid 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.

Paylocity currently has an Earnings ESP of +7.04%, 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 #3 (Hold) indicates that another beat is possibly around the corner. We expect the company's next earnings report to be released on May 7, 2020.

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, though this is not the only reason why their shares gain. Additionally, some stocks may remain stable 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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