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Why Rent-A-Center (RCII) Could Beat Earnings Estimates Again

Zacks Equity Research

If you are looking for a stock that has a solid history of beating earnings estimates and is in a good position to maintain the trend in its next quarterly report, you should consider Rent-A-Center (RCII). This company, which is in the Zacks Consumer Services - Miscellaneous industry, shows potential for another earnings beat.

This company that leases furniture and appliances with an option to buy 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 7.66%.

For the most recent quarter, Rent-A-Center was expected to post earnings of $0.59 per share, but it reported $0.67 per share instead, representing a surprise of 13.56%. For the previous quarter, the consensus estimate was $0.57 per share, while it actually produced $0.58 per share, a surprise of 1.75%.

Price and EPS Surprise

Thanks in part to this history, there has been a favorable change in earnings estimates for Rent-A-Center lately. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the stock is positive, which is a great indicator of an earnings beat, particularly when combined with its solid 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.

Rent-A-Center has an Earnings ESP of +3.39% 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 #3 (Hold), it shows that another beat is possibly around the corner. The company's next earnings report is expected to be released on August 5, 2020.

With the Earnings ESP metric, it's important to note that a negative value reduces its predictive power; however, a negative Earnings ESP does not indicate an earnings miss.

Many companies end up beating the consensus EPS estimate, though this is not the only reason why their shares gain. Additionally, some stocks may remain stable 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.

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