As we have entered the Q1 reporting cycle, seasoned investors will be on the lookout for stocks with steadfast earnings growth. After all, if the company doesn’t make money, it won’t last over the long haul. Consider a company’s revenues over a stipulated time frame, subtract the cost of production and you have 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 look 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.
The Winning Strategy
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have 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 7,818 stocks to only nine.
Here are the top five stocks:
Ruth's Hospitality Group, Inc. RUTH develops, operates, and franchises fine dining restaurants under the Ruth's Chris Steak House name. The company’s estimated growth rate for this year is 23.6%, higher than the Retail - Restaurants industry’s gain of 10.7%.
LHC Group, Inc. LHCG specializes in the post-acute continuum of care primarily for Medicare beneficiaries in the United States. The company’s estimated growth rate for this year is 44.6%, compared with the Medical - Outpatient and Home Healthcare industry’s gain of 22.2%.
Celanese Corporation CE manufactures and sells value-added chemicals, thermoplastic polymers, and other chemical-based products worldwide. The company’s estimated growth rate for this year is 16.6%, better than the Chemical - Diversified industry’s gain of 15.3%.
Northern Trust Corporation NTRS provides asset servicing, fund administration, asset management, fiduciary, and banking solutions for corporations, institutions, families, and individuals worldwide. The company’s estimated growth rate for this year is 29.6%, compared with the Banks - Major Regional industry’s gain of 23.4%.
Interactive Brokers Group, Inc. IBKR operates as an automated electronic broker in approximately 120 electronic exchanges and market centers worldwide. The company’s estimated growth rate for this year is 44.4%, higher than the Financial - Investment Bank industry’s 35.1%.
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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
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Northern Trust Corporation (NTRS) : Free Stock Analysis Report
Celanese Corporation (CE) : Free Stock Analysis Report
Interactive Brokers Group, Inc. (IBKR) : Free Stock Analysis Report
LHC Group (LHCG) : Free Stock Analysis Report
Ruth's Hospitality Group, Inc. (RUTH) : Free Stock Analysis Report
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