Regardless of the fact whether it is a fledgling company or an established corporation, consistent earnings growth is what everyone looks for. This is because earnings serve as the indicator of a company’s profitability. If the company fails to generate enough money, it will eventually run out of gas in the long run.
This metric is also considered to be the most significant variable in influencing the share price. Better-than-expected earnings performances more often than not lead to an increase in the share price.
Earnings Estimates for Determining Stock Price Movements
On many occasions, we have seen the stock price declining despite earnings growth, while on the other hand, the stock price is sometimes found to be soaring following an earnings decline. In such cases, earnings estimate revisions might have come into play. The stock price is determined based on expectations that analysts have on the future earnings power of the firm.
Earnings estimates embody analysts’ opinions of factors such as sales growth, product demand, competitive industry environment, profit margins and cost controls. Thus, earnings estimates are a valuable tool for investors when deciding whether or not to buy a stock.
Hence, it is important for investors to buy stocks that have historical earnings growth and also whose quarterly and annual earnings estimates are on the rise.
Screening Parameters
In order to shortlist stocks that have striking earnings growth and positive estimate revisions, we added the following parameters:
Zacks Rank less than or equal to 2 (Only Zacks' 'Buys' and 'Strong Buys' are allowed. With the Zacks Rank proving itself to be one of the best rating systems out there, this is a great way to start things off.)
5-Year Historical EPS Growth (%) greater than X-Industry: Stocks that possess strong EPS growth history.
% Change EPS F(0)/F(-1) greater than or equal to 5: Companies that witnessed year-over-year earnings growth rate of 5% or more in the last reported fiscal year.
% Change Q1 Estimates over the last 4 weeks greater than zero: Stocks that have seen their current quarter earnings estimates revised higher in the last 4 weeks.
% Change F1 Estimates over the last 1 week greater than zero: Stocks that have seen their annual earnings estimates revised higher in the last 1 week.
% Change F1 Estimates over the last 4 weeks greater than zero: Stocks that have seen their annual earnings estimates revised higher in the last 4 weeks.
The above criteria narrowed down the universe of over 7,740 stocks to only 8. Here are the top 5 stocks:
Honeywell International Inc. ( (NYSE:HON) )
Newell Brands Inc. ( (NYSE:NWL) )
Casey's General Stores, Inc. (CASY)
Amerisafe, Inc. ( (NASDAQ:AMSF) )
LKQ Corp. ( (NASDAQ:LKQ) )
You can get the rest of the stocks on this list by signing up now for your 2-week free trial to the Research Wizard and start using this screen in your own trading. Further, you can also create your own strategies and test them first before taking the investment plunge.
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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: http://www.zacks.com/performance
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NEWELL BRANDS (NWL): Free Stock Analysis Report
HONEYWELL INTL (HON): Free Stock Analysis Report
AMERISAFE INC (AMSF): Free Stock Analysis Report
LKQ CORP (LKQ): Free Stock Analysis Report
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Zacks Investment Research