Earnings growth is the highest priority for any organization. This is because if the company doesn’t make money, it won’t last in the long run. Study a company’s revenues over a given period, subtract the production cost, and you have earnings.
By the way, earnings growth is also considered the most important variable influencing share price. But, expectations of earnings play a noteworthy role.
Earnings Estimates & Share Price Movements
Frequently, we have seen a decline in the stock price despite earnings growth and a rally in price following an earnings decline. This is largely the result of a company’s earnings failing to meet market expectations.
Earnings estimates embody analysts’ opinions on factors such as sales growth, product demand, competitive industry environment, profit margins, and cost control. 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.
Thus, investors should be on the lookout for stocks ready to make a big move. Hence, investors need to buy stocks with historical earnings growth and are seeing a rise in quarterly and annual earnings estimates.
Screening Measures:
To shortlist stocks that have striking earnings growth and positive estimate revisions, we have 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 with a strong EPS growth history).
% Change EPS F(0)/F(-1) greater than or equal to 5 (companies that saw year-over-year earnings growth 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 7,839 stocks to only 12. Here are the top four stocks that stand out:
Eaton ETN is a diversified power management company and a global technology leader in electrical components and systems. The company has a Zacks Rank #2 (Buy). ETN’s expected earnings growth rate for the current year is 16.4%.
Caterpillar CAT is the largest global construction and mining equipment manufacturer. The company has a Zacks Rank #1. CAT’s expected earnings growth rate for the current year is 43.2%.
ITT ITT is a global multi-industry leader in high-technology engineering and manufacturing projects. The company has a Zacks Rank #2. ITT’s expected earnings growth rate for the current year is 14.9%.
Kinsale Capital Group KNSL offers various insurance and reinsurance products. The company has a Zacks Rank #2. KNSL’s expected earnings growth rate for the current year is 48.3%.
Caterpillar Inc. (CAT): Free Stock Analysis Report
Eaton Corporation, PLC (ETN): Free Stock Analysis Report
ITT Inc. (ITT): Free Stock Analysis Report
Kinsale Capital Group, Inc. (KNSL): Free Stock Analysis Report
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This article originally appeared on Zacks
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