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Why MercadoLibre (MELI) Might be Well Poised for a Surge

Zacks Equity Research

MercadoLibre (MELI) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.

Analysts' growing optimism on the earnings prospects of this operator of an online marketplace and payments system in Latin America 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.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for MercadoLibre, as there has been strong agreement among the covering analysts in raising estimates.

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 $0.28 per share for the current quarter represents a change of +212% from the number reported a year ago.

The Zacks Consensus Estimate for MercadoLibre has increased 56.18% over the last 30 days, as one estimate has gone higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $1.16 per share, representing a year-over-year change of +241.46%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for MercadoLibre. Over the past month, one estimate has moved higher compared to no negative revisions, helping the consensus estimate increase 27.19%.

Favorable Zacks Rank

The promising estimate revisions have helped MercadoLibre earn 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

MercadoLibre shares have added 11.4% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.


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