Q3 earnings season has begun and though it won't officially kick
off until next week with the results of Alcoa, we are already live
and trading candidates.
We are expecting further deterioration in top line (revenue
growth) amidst margins that are already quite generous. But
even though analysts are expecting the weakest quarterly earnings
growth since 2009 (-3.4% earnings growth), it might actually bode
well for stock prices. Low expectations may leave more room
for positive surprise and upside rallies in stocks that still
remain relatively inexpensive from a price to earnings
We have a total of 16 companies reporting results this week,
including five S&P 500 companies. Expectations for the third
quarter remain quite low, with total earnings expected to drop 3%
from the same period last year. This growth expectation reflects a
2.4% drop in total revenues and a 10-basis point expansion in net
About Zacks Earnings ESP
Earnings ESP is Zacks' proprietary methodology for determining
which stocks have the best chance to surprise with their next
earnings announcement. The Earnings ESP shows the percentage
difference between the Most Accurate Estimate and the Consensus.
The Zacks ESP helps predict earnings surprises to the upside and
downside; the greater the ESP (positive or negative) the greater
the likelihood for a surprise.
I use ESP to help quantify the conviction of the analysts for a
surprise and stack the odds in my favor when I combine it with
other measurements and statistics.
This can work for bullish potential surprises (positive ESP) as
well as bearish surprises (negative ESP).
Bullish ESP Stocks
Family Dollar (
) is a Zacks Rank 3 stock with a positive earnings ESP of 3% for
the current quarter; the Zacks Consensus is for a profit of 75
cents in Q3. Recent data show consumers still being frugal
with their money, but stable; companies like Family Dollar and
its low cost options (merchandise at prices from under $1 to $10)
remain successful in luring budget-constrained consumers amidst the
fragile economic recovery.
Shares have been building strength, but remain far below the
past year's high of almost $75.
- Family Dollar report earnings on October 3rd
) is a Zacks Rank 2 stock with a positive earnings ESP of 5.75% for
the current quarter; the Zacks Consensus is for a loss of 44
While this quarter may register a loss for the company, analysts
are expecting strength in the quarter and solid 2012 earnings of
$3.72. Revenue should be driven by the drought in the U.S.
and poor crop yields overseas. Farmers will need high quality
seed and fertilizers to get their yields up to par. Monsanto
has reported strong earnings lately, beating estimates 4 out of the
last 5 quarters..
- Monsanto report earnings on October 3rd
Lindsay Corp (
) is a Zacks Rank 2 stock with a positive earnings ESP of 3% for
the current quarter. The Zacks consensus estimate is for Q3
EPS of $0.75, with the most accurate estimate at $0.77.
Lindsay manufactures and markets irrigation equipment used by
farmers to increase or stabilize crop production while conserving
water, energy, and labor.
Lindsay also owns Barrier Systems Inc for movable
barriers/medians you'd see on a highway reducing traffic congestion
among other roadway equipiment. They also are a contract
manufacturer for parts or complete goods for such firms as John
Deere, General Electric and Case New Holland.
With the ongoing drought, chances are that Lindsay's products
are in high demand.
- Lindsay Corp reports earnings on October 11th
Take Earnings a Step Further
If the ESP method sounds intriguing to you for improving your
portfolio performance, you should check out Zacks Whisper Trader.
Not only do I utilize Earnings ESP but I also factor in
several critical data sets to create the "secret sauce" I use to
achieve better than 80% accuracy in identifying positive earnings
surprises… before they're reported.
Senior Equities Strategist, Jared A Levy, is the editor of
Whisper Trader and can show you how to use the power of Zacks
Earnings ESP and earnings surprises for timely, steady gains.
Learn more about
FAMILY DOLLAR (FDO): Free Stock Analysis Report
LINDSAY CORP (LNN): Free Stock Analysis Report
MONSANTO CO-NEW (MON): Free Stock Analysis
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