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Looking for Earnings Beat? Here Are 5 Top Picks

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·6 min read
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Equity investors are all attentive before an earnings release. This is because earnings apparently indicate a company’s financial health. There is no denying that solid earnings growth speaks about business well-being, but there is another factor that matters even more — positive earnings surprise or earnings beat. Let’s tell you why it is so important.

Notably, lululemon athletica LULU, AutoZone AZO, Chemours CC, The Goldman Sachs Group (GS) and Cross Country Healthcare CCRN are likely to post earnings beat in their upcoming release.

What is Earnings Beat?

Investors always try to position themselves ahead of time and look for stocks that are likely to come up with a stellar performance. After much brainstorming, Wall Street analysts project earnings of companies. These estimates act as investment leads.

A positive earnings surprise or earnings beat is typically the case when actual or reported earnings come in above the consensus estimate. Historically, if a company’s earnings manage to beat market expectations, its stock surges post release.

Why Earnings Beat is Superior to Earnings Growth?

A 20% earnings rise (though apparently looks good) doesn’t tell you everything about the company. This might represent a decelerating earnings growth momentum over the years or quarters, raising questions over the company’s fundamentals.

Also, seasonal fluctuations come into play sometimes. If a company’s Q1 is seasonally weak and Q4 is strong, then it is likely to report a sequential earnings decline. In such cases, growth rates are misleading while judging the true health of a company.

On the other hand, analysts put together their insights and a company’s guidance when giving an earnings estimate. Thus, outperforming that estimate is almost equivalent to beating the company’s own expectation as well as market perception. Of course, this gives you a clear picture of the company’s bottom line. And if the margin of earnings surprise is big, it typically drives the stock higher right after the release.

How to Find Stocks that Can Beat?

Now, since it is difficult to predict if a company will beat or miss in the upcoming earnings season, investors can check the earnings surprise history. An impressive track in this regard generally acts as a catalyst in sending a stock higher. It indicates the company’s ability to surpass estimates. And investors generally believe that the company will have the same trick up its sleeve or in other words is smart enough to beat on earnings in its next release.

The Winning Strategy

In order to shortlist stocks that are likely to come up with an earnings surprise, we chose the following as our primary screening parameters.

Last EPS Surprise greater than or equal to 10%:Stocks delivering positive surprise in the last quarter tend to surprise again.

Average EPS Surprise in the last four quarters greater than 20%:We lifted the bar for outperformance slightly higher by setting the average EPS surprise for the last four quarters at 20%.

Average EPS Surprise in the last two quarters greater than 20%:This points to a more consistent surprise history and makes the case for another surprise even stronger.

In addition, we place a few other criteria that push up the chance of a surprise.

Zacks Rank less than or equal to 2: Only companies with a Zacks Rank #1 (Strong Buy) or 2 (Buy) can get through.

Earnings ESP greater than zero: A stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 (Hold) for an earnings beat to happen, as per our proven model.

In order to zero in on those that have long-term growth potential and high trading liquidity we have added the following parameters too:

Next 3–5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth exhibits the stock’s long-term growth prospects.

Average 20-day Volume greater than 100,000: High trading volume implies that the stocks have adequate liquidity.

A handful of criteria have narrowed down the universe from over 7,700 stocks to around 12.

Here are five out of the 12 stocks that passed the screen:

lululemon athletica (LULU): This is a yoga-inspired athletic apparel company that creates lifestyle components. LULU has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

lululemon athletica designs, manufactures and distributes athletic apparel and accessories for women, men and female youth. The four-quarter average earnings surprise of LULU is 25.19%.

AutoZone (AZO): Zacks Rank #2 AutoZone is one of the leading specialty retailers and distributors of automotive replacement parts and accessories in the United States.

AutoZone operates in the Do-It-Yourself retail, Do-It-for-Me auto parts and products markets. The four-quarter average earnings surprise of AZO is 23.17%.

Chemours (CC): Zacks Rank #2 Chemours Company is a leading provider of performance chemicals that are the key ingredients in end-products and processes across a host of industries.

Chemours offers its customers with solutions across a vast spectrum of industries, including plastics and coatings, refrigeration and air conditioning, mining and general industrial manufacturing, and electronics. Last four-quarter average earnings surprise of CC is 34.24%.

The Goldman Sachs Group (GS): Zacks Rank #1 Goldman Sachs is a leading global financial holding company, providing investment banking, securities, investment management and consumer banking services to a diversified client base.

Goldman Sachs provides its services through four broad segments: the IB segment (contributed 27% to third-quarter 2021 revenues), the Global Markets segment (41%), the Consumer & Wealth Management segment (15%) and the Asset Management division (17%). Last four-quarter average earnings surprise of GS is 66.80%.

Cross Country Healthcare (CCRN): Zacks Rank #1 Cross Country Healthcare is a national leader in providing innovative healthcare workforce solutions and staffing services.

Cross Country Healthcare’s diverse client base includes both clinical and nonclinical settings, servicing acute care hospitals, physician practice groups, outpatient and ambulatory-care centers, nursing facilities, both public schools and charter schools, rehabilitation and sports medicine clinics, government facilities, and homecare.Last four-quarter average earnings surprise of CCRN is 74.97%.

You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.

The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.

Click here to sign up for a free trial to the Research Wizard today.

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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AutoZone, Inc. (AZO) : Free Stock Analysis Report
 
lululemon athletica inc. (LULU) : Free Stock Analysis Report
 
Cross Country Healthcare, Inc. (CCRN) : Free Stock Analysis Report
 
The Chemours Company (CC) : Free Stock Analysis Report
 
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