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Everyone is probably in search of earning beat this reporting cycle. Out of 350 tickers of the S&P 500 index that have reported already, 74% beat on bottom line and 68% surpassed revenue estimates, as per the Earnings Trends.
Growth appears slightly weaker than the prior period, but beat ratios emerged stronger. This spread an upbeat sentiment around corporate earnings this season as well as the broader market. No wonder, investors will look for more earnings beat in the coming days.
Why Is Earnings Surprise So Important?
A positive earnings surprise or beat is typically the case when actual or reported earnings come in higher than the consensus estimate. Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations.
After all, a 10% earnings rise (though apparently looks good) doesn’t tell you everything about the company. This growth may be decelerating over the years or quarters, raising questions over the company’s fundamentals.
Also, seasonal fluctuations come into the play sometimes. If any company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.
On the other hand, analysts apply their insights and consider a company’s guidance when forecasting its earnings estimate. As a result, beating that key number is almost equivalent to beating one’s own expectation as well as the market estimate. Needless to say, this gives you a better picture of the company’s bottom line. And if the margin of earnings surprise is big, it typically sends the stock skyrocketing immediately after the release.
Also, a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. And investors generally believe that the company will apply the same trick or in other words is smart enough to beat on earnings in its next release.Hence, earnings surprise can be viewed as a key metric for share price outperformance.
The Winning Strategy
In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.
Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again.
Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slight higher by setting the average earnings surprise for the last four quarters at 20%.
Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we place a few other criteria that push up the chance of a positive surprise.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through.
Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model.
In order to zero in on those that have long-term growth potential and high trading liquidity we have added the following parameters too:
Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.
Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.
A handful of criteria has narrowed down the universe from over 7,700 stocks to 11.
Here are five out of 11 stocks that passed the screen:
SP Plus Corporation (NASDAQ:– Free Report): The company provides professional parking, ground transportation, facility maintenance, security and event logistics services to property owners and managers in all markets of the real estate industry. The stock belongs to a Zacks Industry Rank in the top 36%. It has a Zacks Rank #2.
Inogen Inc. (NASDAQ:(INGN - Free Report) – Free Report): This medical technology company belongs to a Zacks Industry Rank is in the top 43%. It sports a Zacks Rank #1.
Graco Inc. (NYSE:(GGG - Free Report) – Free Report): This supplier of technology and expertise for the management of fluids in both industrial and commercial settings carries a Zacks Rank #2. The Zacks Industry Rank of the stock is in the top 25%.
Sterling Construction Company Inc. (NASDAQ:(STRL - Free Report) – Free Report): This holding company, which has historically operated as a wholesale distributor to the automotive aftermarket and construction, flaunts a Zacks Rank #1. The Zacks Industry Rank of the stock is in the top 11%.
FireEye Inc. (NASDAQ:– Free Report): The company provides security platform for cyber-attacks to enterprises and governments. The stock has a Zacks Rank #2 and the Zacks Industry Rank is in the top 33%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
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Zacks.com featured highlights: SP Plus, Inogen, Graco, Sterling Construction and FireEye
For Immediate Release
Chicago, IL –August 08, 2017 - Stocks in this week’s article includeSP Plus Corporation (NASDAQ:– Free Report), Inogen Inc. (NASDAQ:(INGN - Free Report) – Free Report), Graco Inc. (NYSE:(GGG - Free Report) – Free Report), Sterling Construction Company Inc. (NASDAQ:(STRL - Free Report) – Free Report) andFireEye Inc. (NASDAQ:– Free Report).
5 Stocks to Beat the Market This Reporting Cycle
Everyone is probably in search of earning beat this reporting cycle. Out of 350 tickers of the S&P 500 index that have reported already, 74% beat on bottom line and 68% surpassed revenue estimates, as per the Earnings Trends.
Growth appears slightly weaker than the prior period, but beat ratios emerged stronger. This spread an upbeat sentiment around corporate earnings this season as well as the broader market. No wonder, investors will look for more earnings beat in the coming days.
Why Is Earnings Surprise So Important?
A positive earnings surprise or beat is typically the case when actual or reported earnings come in higher than the consensus estimate. Historically, stocks of companies with solid quarterly earnings (on a nominal basis) tank if they miss or merely meet market expectations.
After all, a 10% earnings rise (though apparently looks good) doesn’t tell you everything about the company. This growth may be decelerating over the years or quarters, raising questions over the company’s fundamentals.
Also, seasonal fluctuations come into the play sometimes. If any company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.
On the other hand, analysts apply their insights and consider a company’s guidance when forecasting its earnings estimate. As a result, beating that key number is almost equivalent to beating one’s own expectation as well as the market estimate. Needless to say, this gives you a better picture of the company’s bottom line. And if the margin of earnings surprise is big, it typically sends the stock skyrocketing immediately after the release.
Also, a history of positive earnings surprise generally works as a catalyst in sending a stock higher. It indicates the company’s ability to surpass the estimates. And investors generally believe that the company will apply the same trick or in other words is smart enough to beat on earnings in its next release.Hence, earnings surprise can be viewed as a key metric for share price outperformance.
The Winning Strategy
In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.
Last EPS Surprise greater than or equal to 10%: Stocks delivering positive surprise in the last quarter tend to surprise again.
Average EPS Surprise in the last four quarters greater than 20%: We lifted the bar for outperformance slight higher by setting the average earnings surprise for the last four quarters at 20%.
Average EPS Surprise in the last two quarters greater than 20%: This points to a more consistent surprise history and makes the case for another surprise even stronger.
In addition, we place a few other criteria that push up the chance of a positive surprise.
Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) rating can get through.
Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for an earnings beat to happen, as per our proven model.
In order to zero in on those that have long-term growth potential and high trading liquidity we have added the following parameters too:
Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.
Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.
A handful of criteria has narrowed down the universe from over 7,700 stocks to 11.
Here are five out of 11 stocks that passed the screen:
SP Plus Corporation (NASDAQ: – Free Report): The company provides professional parking, ground transportation, facility maintenance, security and event logistics services to property owners and managers in all markets of the real estate industry. The stock belongs to a Zacks Industry Rank in the top 36%. It has a Zacks Rank #2.
Inogen Inc. (NASDAQ:(INGN - Free Report) – Free Report): This medical technology company belongs to a Zacks Industry Rank is in the top 43%. It sports a Zacks Rank #1.
Graco Inc. (NYSE:(GGG - Free Report) – Free Report): This supplier of technology and expertise for the management of fluids in both industrial and commercial settings carries a Zacks Rank #2. The Zacks Industry Rank of the stock is in the top 25%.
Sterling Construction Company Inc. (NASDAQ:(STRL - Free Report) – Free Report): This holding company, which has historically operated as a wholesale distributor to the automotive aftermarket and construction, flaunts a Zacks Rank #1. The Zacks Industry Rank of the stock is in the top 11%.
FireEye Inc. (NASDAQ: – Free Report): The company provides security platform for cyber-attacks to enterprises and governments. The stock has a Zacks Rank #2 and the Zacks Industry Rank is in the top 33%.
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use. Each week, Zacks Profit from the Pros free email newsletter shares a new screening strategy. Learn more about it here https://at.zacks.com/?id=112
About Zacks
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time!Click here for your free subscription to Profit from the Pros.
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Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com
Visit: https://www.zacks.com/performance
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.