The market expects Lululemon (NASDAQ: LULU) to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended July 2019. This widely-known consensus outlook is important in assessing the company’s earnings picture, but a powerful factor that might influence its near-term stock price is how the actual results compare to these estimates.
LULU stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on Sept. 5. On the other hand, if the results miss analysts’ average outlook, LULU stock may move lower.
While the sustainability of the immediate price change and future earnings expectations will mostly depend on management’s discussion of business conditions on the earnings call, it’s worth handicapping the probability of a positive EPS surprise.
Zacks Consensus Estimate
This athletic apparel maker is expected to post quarterly earnings per share of 89 cents in its upcoming report, which represents a year-over-year gain of 25.4%.
Revenues are expected to be $844.31 million, up 16.7% from the year-ago quarter.
Estimate Revisions Trend
The consensus EPS estimate for the quarter has remained unchanged over the last 30 days. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.
Investors should keep in mind that an aggregate change may not always reflect the direction of estimate revisions by each of the covering analysts.
Price, Consensus and EPS Surprise
Earnings Whisper
Estimate revisions ahead of a company’s earnings release offer clues about the business conditions for the period whose results are coming out. This insight is at the core of our proprietary surprise prediction model — the Zacks Earnings ESP (Expected Surprise Prediction).
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more recent version of the Zacks Consensus EPS estimate. The idea is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they had predicted earlier.
Thus, a positive or negative Earnings ESP reading theoretically indicates the likely deviation of the actual earnings from the consensus estimate. However, the model’s predictive power is significant for positive ESP readings only.
A positive Earnings ESP is a strong predictor of an earnings beat, particularly when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.
Please note that a negative Earnings ESP reading is not indicative of an earnings miss. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).
How Have the Numbers Shaped Up for LULU?
For Lululemon, the Most Accurate Estimate is higher than the Zacks Consensus Estimate, suggesting that analysts have recently become bullish on the company’s earnings prospects. This has resulted in an Earnings ESP of +1.77%.
On the other hand, the stock currently carries a Zacks Rank of #3.
So, this combination indicates that LULU will most likely beat the consensus EPS estimate.
Does History Hold Any Clue?
While calculating estimates for a company’s future earnings, analysts often consider to what extent it has been able to meet consensus estimates in the past. So, it’s worth taking a look at a company’s earnings history.
For the last reported quarter, it was expected that LULU would post earnings 71 cents per share when it actually produced earnings of 74 cents, delivering a surprise of +4.23%.
Over the last four quarters, the company has beaten consensus EPS estimates four times.
The Bottom Line on LULU Stock
An earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help a number of stocks rose despite an earnings miss.
That said, betting on stocks that are expected to beat earnings expectations does increase the odds of success. This is why it’s worth checking a company’s Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.
Lululemon appears to be a compelling earnings-beat candidate. However, investors should pay attention to other factors too.
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