Consider a company’s revenues over a given period of time, subtract the cost of production and you have earnings. Earnings growth enthralls almost everyone, right from the top brass to research analysts. And why not? If a company doesn’t make money, it won’t last over the long haul.
This metric is also considered the most important variable in influencing the share price. But, expectations of earnings also play a significant role.
Earnings Estimates Determine 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’ opinion on factors such as sales growth, product demand, competitive industry environment, profit margins and cost control. Thus, earnings estimates serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.
Investors, thus, should be on the lookout for stocks that are ready to make a big move. 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.
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we have 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.)
5-Year Historical EPS Growth (%) greater than X-Industry (stocks with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth 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 7,839 stocks to only 9. Here are the top four stocks:
Mettler-Toledo International Inc. MTD manufactures and supplies precision instruments and services worldwide. The company carries a Zacks Rank #2 (Buy). The company’s estimated earnings growth rate for this year is 11.4% compared with the Instruments - Scientific industry’s projected rise of 5.8%.
Ternium S.A. TX manufactures and processes various steel products. The company has a Zacks Rank #2. The company’s earnings growth rate for the past five years is 33.3%, outperforming the Steel - Producers industry’s increase of 11.3%.
Civista Bancshares, Inc. CIVB operates as the financial holding company for Civista Bank that engages in the community banking business in Ohio. The company sports a Zacks Rank #1 (Strong Buy). The company’s expected earnings growth rate for the next quarter is 11.4%, more than the Banks - Midwest industry’s projected growth of 9.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Arista Networks, Inc. ANET develops, markets, and sells cloud networking solutions in the Americas, Europe, the Middle East, Africa, and the Asia-Pacific. The company flaunts a Zacks Rank #1. The company’s expected earnings growth rate for the current year is 15.7%, more than the Communication - Components industry’s projected growth of 10.2%.
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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.
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Arista Networks, Inc. (ANET) : Free Stock Analysis Report
Civista Bancshares, Inc. (CIVB) : Free Stock Analysis Report
Mettler-Toledo International, Inc. (MTD) : Free Stock Analysis Report
Ternium S.A. (TX) : Free Stock Analysis Report
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