Irrespective of whether a company is young or an established one, steady earnings growth is what entices all. This is because earnings serve as a major indicator of a company’s profitability. Take a company’s revenue over a given period of time, subtract the cost of production and, there it is, you have earnings!
This metric is also considered to be the most significant variable in influencing the share price. However, in addition to actual earnings, expectations of earnings play a vital role in determining the share price movement.
Earnings Estimates Shaping Stock Prices
Earnings estimates embody analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost controls. On numerous occasions, we have seen the stock price decline despite earnings growth, while on the other hand, the stock price is sometimes seen soaring following an earnings decline. This happens because of the missing or beating of estimates.
Thus, earnings estimates serve as a valuable tool while taking investment decisions. Earnings estimates also help an analyst use cash flow analysis to determine the fair value of a firm. Hence, it is important for investors to buy 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 added the following parameters:
Zacks Rank less than or equal to 2 (Only Zacks' 'Buys' and '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 7,718 stocks to only 34. Here are the top 5 stocks:
The Cheesecake Factory IncorporatedCAKE operates full-service and casual dining restaurants primarily in the United States. The company’s estimated earnings growth rate for this year is 19.5%.
Thermo Fisher Scientific, Inc. TMO provides analytical instruments, equipment, reagents and consumables, software, and services for research, manufacturing, analysis, discovery, and diagnostics worldwide. The company’s estimated earnings growth rate for this year is 11.3%.
EMCOR Group Inc. EME offers electrical and mechanical construction and facilities services to commercial, industrial, utility, and institutional customers primarily in the United States.The company’s estimated earnings growth rate for this year is 16.3%.
CubeSmart CUBE is an equity real estate investment trust. The company’s estimated earnings growth rate for this year is 14.4%.
CoreLogic, Inc. CLGX provides property information, analytics, and data-enabled services in North America, Western Europe, and the Asia Pacific.The company’s estimated earnings growth rate for this year is 27%.
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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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EMCOR GROUP INC (EME): Free Stock Analysis Report
THERMO FISHER (TMO): Free Stock Analysis Report
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CHEESECAKE FACT (CAKE): Free Stock Analysis Report
CUBESMART (CUBE): Free Stock Analysis Report
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