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Surging Earnings Estimates Signal Upside for Vertex (VRTX) Stock

Zacks Equity Research

Vertex Pharmaceuticals (VRTX) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.

The rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this drugmaker, 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 -- is principally built on this insight.

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 Vertex, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher 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

For the current quarter, the company is expected to earn $1.12 per share, which is a change of +2.75% from the year-ago reported number.

Over the last 30 days, the Zacks Consensus Estimate for Vertex has increased 14.1% because six estimates have moved higher while three have gone lower.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $4.58 per share, representing a year-over-year change of +12.25%.

The revisions trend for the current year also appears quite promising for Vertex, with eight estimates moving higher over the past month compared to three negative revisions. The consensus estimate has also received a boost over this time frame, increasing 11.25%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Vertex currently carries a Zacks Rank #2 (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

While strong estimate revisions for Vertex have attracted decent investments and pushed the stock 7.5% higher over the past four weeks, further upside may still be left in the stock. So, you may consider adding it to your portfolio right away.


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