7 Mid-Cap Stocks That Consistently Crush Earnings


Earnings season is the most dangerous time of the year for companies and investors alike.

The Street frequently punishes companies that fall short of expectations, with investors quickly bailing onstocks that show even a glimpse of weakness.

Take Apple Inc. (Nasdaq: AAPL) for example. Even though the company's recent fourth-quarter results beatanalyst estimates, because sales andmargin year-over-year growth slumped in key areas, Apple was hit with a 10% loss just hours after the release.

It's a simple lesson, but also one that reinforces just how important it is to invest in companies that consistently beat expectations. Companies that consistently beatearnings expectations are sending a big message to themarket .

At the highest level, anearnings surprise says alot about management. It demonstrates management's ability to identify newinvestment opportunities to drive return onequity . It also means the company's leadership effectively manages analyst expectations. Letting the analyst community get toobullish and missing overly optimistic estimates is a cardinal sin for a good management team.

It's also important to recognize that earnings surprises are driven by earnings growth. A company with a consistent record of beating estimates is demonstrating its ability to grow earnings in all different stages of the economic cycle. Consistent earnings growth also helps on the valuation front, still the single most important factor affecting a company's share price.

As you can see, a company that consistently beats expectations has a few things to brag about.

But when it comes tolarge caps , heavy analyst coverage makes it hard to sneak up on the Street with anything new, even an earnings surprise. On the other side of the spectrum, small caps have so little analyst coverage that can it can lead to extreme volatility. 

That's why I look to mid-cap stocks when I want to find companies that consistently beat earnings. Mid-cap stocksoffer a great blend of growth, stability and the perfect amount of analyst coverage to set the foundation for an earnings surprise thatwill pushshares higher. 

I built a list of seven mid-cap stocks that consistently crush earnings. In fact, each one of the stocks listed has had an average earnings surprise of more than 50% in the last ninequarters . 

Of the seven, two companies stand out:  Hillshire Brands ( HSH ) , because it operates in the bullish food and agriculture industry and Atmos Energy ( ATO ) because of itsleverage to natural gas.

1. Hillshire Brands Co. 
Hillshire Brands is a food manufacturer with an impressive portfolio of brands that includes Jimmy Dean, Ball Park and Sara Lee. With the food and agriculture stocks jumping higher in the past few years, Hillshire Brands has been on the move, up a market-beating 33%. These gains have been driven by solid earnings growth, withanalysts looking for 17% earnings growth in the fourth quarter of 2012 and another 6% in 2013. 

This has lifted Hillshire Brands to an average earnings surprise of 59% in the last nine quarters. The company also carries a soliddividend yield of 1.7%, which is almost on par with the 10-YearTreasury note 's 1.9%yield .

2. Atmos Energy
This utility company stores and distributes natural gas in the United States. This places the company in an excellent position tocapitalize on the secular growth trend in the consumption of natural gas. Atmos is up 17% in the past year, almost directly in line with the S&P 500. As a utility, thisstock offers high barriers to entry, consistent growth and a solid dividend yield of 3.5%. But in spite of its status as a utility, growing demand for natural gas has lifted Atmos to an average earnings surprise of 56% in the last nine quarters.

Risks to Consider: Actual earnings are important but forwardguidance is as well. Companies that beat earnings expectations can still trade lower if guidance comes in below expectations.

Action to Take --> These seven mid-cap sotcks have averaged more than a 50% earnings surprise in the last nine quarters. And with Hillshire benefitting from the bullish trend in food and agriculture, and Atmos in position to gain on the natural gas boom, these are two mid-cap stocks with strong histories of earnings surprises to keep an eye on this earnings season.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

Referenced Stocks: AAPL , ATO , HSH



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