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Earnings Estimates Moving Higher for PennyMac (PFSI): Time to Buy?

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Zacks Equity Research
·2 min read
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Investors might want to bet on PennyMac Financial (PFSI), as earnings estimates for this company have been showing solid improvement lately. The stock has already gained solid short-term price momentum, and this trend might continue with its still improving earnings outlook.

Analysts' growing optimism on the earnings prospects of this mortgage banking and investment management company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For PennyMac, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The earnings estimate of $2.77 per share for the current quarter represents a change of +201.09% from the number reported a year ago.

Over the last 30 days, one estimate has moved higher for PennyMac while one has gone lower. As a result, the Zacks Consensus Estimate has increased 21.81%.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $10.57 per share, representing a year-over-year change of +116.16%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for PennyMac. Over the past month, one estimate has moved higher compared to one negative revision, helping the consensus estimate increase 35.02%.

Favorable Zacks Rank

The promising estimate revisions have helped PennyMac earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on PennyMac because of its solid estimate revisions, as evident from the stock's 10.7% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.

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PennyMac Financial Services, Inc. (PFSI) : Free Stock Analysis Report
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