5 Solid Earnings Growth Plays For Q1 Reporting Cycle

Right from the top brass to research analysts, unswerving earnings growth entices all and sundry. And why not? This is simply because earnings are a measure of the money a company is making. Take a company’s revenues over a given period of time, subtract the cost of production and you will have its earnings!

This metric is also considered to be the most significant variable in influencing the share price. Better-than-expected earnings performances normally lead to a rally in the share price. However, in addition to actual earnings, expectations of earnings play a vital role in determining share price movement.

Earnings Estimates for Determining Stock Price Movements

On many occasions, we have seen the stock price decline despite earnings growth, while many a time, the stock price rallies following an earnings decline. In such cases, earnings estimate revisions might come into play. The stock price is determined based on expectations that analysts have on the future earnings power of a 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 serve as a valuable tool while making investment decisions. Earnings estimates also help analysts assess the cash flow to determine the fair value of a firm.

The earnings reporting cycle has gotten underway. Total Q1 earnings are expected to be up 6.5% from the same period last year on 6.3% higher revenues (read more: Q1 Earnings Season Gets Underway).

Investors, thus, should be on the lookout for stocks that are ready to make a big move. Hence, it is important for investors to invest in stocks that have historical earnings growth and are also seeing a rise in quarterly and annual earnings estimates.

The Winning Strategy

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.)

% 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 around 7,818 stocks to only 14. Here are the top five stocks:

Constellation Brands, Inc. (NYSE:STZ) is an international beverage alcohol company. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings rose 6.1% over the last 60 days. The company’s current quarter growth estimate is pegged at 27.49%. The company’s estimated earnings growth rate for this year is 18.2%, ahead of the Beverages - Alcohol industry’s addition of 14.2%.

STMicroelectronics NV (NYSE:STM) is a global semiconductor company. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings rose 4.3% over the last 60 days. The company’s current quarter growth estimate is pegged at 766.67%. The company’s estimated earnings growth rate for this year is 150.9%, ahead of the Semiconductor - General industry’s addition of 7.2%.

Tallgrass Energy Partners LP (NYSE:TEP) owns, operates, acquires and develops midstream energy assets in North America. The company has a Zacks Rank #1. The Zacks Consensus Estimate for its current year earnings rose 38.8% over the last 60 days. The company’s current quarter growth estimate is pegged at 22%. The company’s estimated earnings growth rate for this year is 48.1%, ahead of the Oil and Gas - Production and Pipelines industry’s gain of 18.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Bank of America Corp (NYSE:BAC) is a bank holding company and a financial holding company. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings rose 1.7% over the last 60 days. The company’s current quarter growth estimate is pegged at 66.67%. The company’s estimated earnings growth rate for this year is 17.4%, ahead of the Banks - Major Regional industry’s addition of 10.5%.

First Midwest Bancorp Inc (NASDAQ:FMBI) is a bank holding company. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current year earnings rose 0.7% over the last 60 days. The company’s current quarter growth estimate is pegged at 25.93%. The company’s estimated earnings growth rate for this year is 19.9%, ahead of the Banks - Midwest industry’s rise of 5.4%.

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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: https://www.zacks.com/performance

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