Right from the top brass to research analysts, unswerving earnings growth enthralls almost everyone. And why not? If the company doesn’t make money, it won’t stand the test of time. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!
This metric is also considered to be the most noteworthy variable in influencing the share price. Better-than-expected earnings performances normally lead to a rally in the share price. However, in addition to actual earnings, expectations of earnings play a significant role in influencing the price of a stock.
Earnings Estimates Shape 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’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost controls. Thus, earnings estimates serve as a valuable tool while taking investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
As the earnings season picks up pace, investors should be on the lookout for stocks that are ready to make a big move.
Hence, it is important for investors to invest in 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 added the following parameters:
- Zacks Rank equal to 1 (Only Zacks’ ‘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.) You can see the complete list of today’s Zacks #1 Rank stocks here.
- 5-Year Historical EPS Growth (%) greater than X-Industry (Stocks that possess strong EPS growth history.)
- % Change EPS F(0)/F(-1) greater than or equal to 5 (Companies that witnessed year-over-year earnings growth rate 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 7,886 stocks to only 9.
Here are the top five stocks:
United States Steel Corporation (X) produces and sells flat-rolled and tubular steel products in North America and Europe. The company’s estimated growth rate for this year is 266.6%, way higher than the industry’s gain of 29.1%. The Zacks Consensus Estimate for its current year earnings surged 337.7% over the last 60 days.
Brooks Automation, Inc. (BRKS) provides automation and cryogenic solutions for various applications and markets. The company’s estimated growth rate for this year is 105%, way ahead of the industry’s addition of 12.5%. The Zacks Consensus Estimate for its current year earnings increased 17.1% in the last 60 days.
First Financial Northwest, Inc. (FFNW) operates as the bank holding company for First Savings Bank Northwest that provides commercial banking services in Washington. The company’s estimated growth rate for this year is 39.9%, more than the industry’s gain of 13%. The Zacks Consensus Estimate for its current year earnings advanced 14.4% over the last 60 days.
MainSource Financial Group Inc (MSFG) operates as the bank holding company for MainSource Bank that provides a range of financial services in the U.S. The company’s estimated growth rate for this year is 11.8%, higher than the industry’s increase of 6.2%. The Zacks Consensus Estimate for its current year earnings increased 6.7% in the last 60 days.
First Midwest Bancorp Inc (FMBI) operates as a bank holding company for First Midwest Bank that provides various banking products and services. The company’s estimated growth rate for this year is 18.9%, more than the industry’s gain of 6.2%. The Zacks Consensus Estimate for its current year earnings improved 6.6% over the last 60 days.
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.
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
Zacks Restaurant Recommendations: In addition to dining at these special places, you can feast on their stock shares. A Zacks Special Report spotlights 5 recent IPOs to watch plus 2 stocks that offer immediate promise in a booming sector.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report