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Why STMicroelectronics (STM) Might be Well Poised for a Surge

Zacks Equity Research

STMicroelectronics (STM) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.

The upward trend in estimate revisions for this chip company reflects growing optimism of analysts on its earnings prospects, 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. This insight is at the core of our stock rating tool -- the Zacks Rank.

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 STMicroelectronics, 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

The earnings estimate of $0.38 per share for the current quarter represents a change of -17.39% from the number reported a year ago.

The Zacks Consensus Estimate for STMicroelectronics has increased 13.64% 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 $1.08 per share, representing a year-over-year change of -24.48%.

The revisions trend for the current year also appears quite promising for STMicroelectronics, with three estimates moving higher over the past month compared to no negative revisions. The consensus estimate has also received a boost over this time frame, increasing 5.86%.

Favorable Zacks Rank

The promising estimate revisions have helped STMicroelectronics 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

Investors have been betting on STMicroelectronics because of its solid estimate revisions, as evident from the stock's 18.5% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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