U.S. Markets open in 1 hr 22 mins

Why the Earnings Surprise Streak Could Continue for Guidewire Software (GWRE)

Zacks Equity Research
1 / 2

Texas Capital (TCBI) Down 9.8% Since Last Earnings Report: Can It Rebound?

Texas Capital (TCBI) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

Have you been searching for a stock that might be well-positioned to maintain its earnings-beat streak in its upcoming report? It is worth considering Guidewire Software (GWRE), which belongs to the Zacks Business - Software Services industry.

This provider of software to the insurance industry has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average surprise for the last two quarters was 303.29%.

For the last reported quarter, Guidewire Software came out with earnings of $0.81 per share versus the Zacks Consensus Estimate of $0.76 per share, representing a surprise of 6.58%. For the previous quarter, the company was expected to post earnings of $0.01 per share and it actually produced earnings of $0.05 per share, delivering a surprise of 600%.

Price and EPS Surprise

With this earnings history in mind, recent estimates have been moving higher for Guidewire Software. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the company is positive, which is a great sign of an earnings beat, especially when you combine this metric with its nice Zacks Rank.

Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate could be as high as seven.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

Guidewire Software has an Earnings ESP of +0.63% at the moment, suggesting that analysts have grown bullish on its near-term earnings potential. When you combine this positive Earnings ESP with the stock's Zacks Rank #2 (Buy), it shows that another beat is possibly around the corner. The company's next earnings report is expected to be released on December 5, 2018.

Investors should note, however, that a negative Earnings ESP reading is not indicative of an earnings miss, but a negative value does reduce the predictive power of this metric.

Many companies end up beating the consensus EPS estimate, but that may not be the sole basis for their stocks moving higher. On the other hand, some stocks may hold their ground even if they end up missing the consensus estimate.

Because of this, it's really important to check a company's Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Guidewire Software, Inc. (GWRE) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.