Earnings season is set to unofficially begin next week with
the release of Alcoa's earnings on Monday the 8th. Several
S&P 500 stocks have already begun reporting with initial
reports from the likes of
) andFedEx (
) already disappointing investors.
Of course it's too early to tell how this season will shape
up, but it's important to note that growth expectations remain
weak, a reflection of underwhelming management guidance and tough
comparisons -- the first quarter of 2012 remains the high point
of quarterly earnings since the economy has been "expanding"
The financial sector is expected to experience an earnings
decline after many quarters of double-digit growth. The outlook
for Tech is even weaker and fairly widespread, which would come
after the sector's underwhelming results in the previous
Revenue growth will be closely monitored as many companies
have reached their peak margin levels. Even with low
expectations, it will be a challenge to target companies that
exceed analysts' estimates. The Zacks Earnings ESP can be a
useful tool in your search; here are a few companies with
positive ESPs and a Zacks Rank of 3 or less (Hold to Strong
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
The Accuracy of ESP
Of course, some ESP numbers are better than others. In our
testing, over the last 10 years, we have found that stocks with a
positive ESP and with a Zacks Rank of 1, 2 or 3 (Strong Buy, Buy
or Hold), produced a positive surprise 70% of the time.
(The other 9% of the time, they reported in line with
expectations, with a negative surprise occurring only 21% of the
Bullish ESP Stocks
Progressive Insurance (
is a Zacks Rank #1 stock with a positive earnings ESP of 4.65%
for the current quarter. The company is expected to make 43 cents
a share, but our ESP readings are looking for a profit of 45
Progressive is unique in that it's one of the only companies
that reports earnings monthly. While this may diminish
volatility, it allows investors to keep a more constant eye on
the company's health.
Progressive is trading at 17 times forward earnings, but has
been delivering solid growth even with super storm Sandy.
Strength in their last report was primarily driven by 9% year
over year growth in net premiums and 111% escalation in net
realized investment gains. Expectations are for the company to
grow earnings at roughly 7% year over year.
- Progressive reports earnings on April 10th.
JB Hunt Transport (
is a Zacks Rank #2 stock with a positive earnings ESP of 4.69%
for the current quarter; the Zacks Consensus is for a per share
profit of $0.64.
Intermodal transport (diversified) accounted for 61% or $821
million of JBHT's revenue in Q42012, up 13% compared to Q42011.
Their Total revenue was up 11% in that same time frame. What
makes that more remarkable is that shipments were basically flat
in that same time frame, while expenditures were down according
to the Cass Freight Index.
Analysts also seem to be getting slightly more bullish on the
stock as ESPs are all positive for the coming reporting periods.
Shares trade at 24 times forward earnings and JBHT will have to
deliver on its 16% growth in 2013 to keep investors happy.
- JB Hunt reports earnings on April 11th.
JP Morgan Chase (
) is a Zacks Rank #2 stock with a positive earnings ESP of 6.62%
for the current quarter. The Zacks consensus estimate is for Q4
EPS of $1.36, with the most accurate estimate at $1.45.
JP Morgan has managed to beat the Zacks Consensus estimate for
the last 4 quarters in a row with an average beat of 24.66%.
When you clear out all the headlines, you have a stock trading
at just 8.8 times forward earnings with expected earnings growth
of 7.12%, giving this bank a PEG ratio of just 1.26.
JPMorgan Chase & Co recently won the dismissal of the vast
majority of a lawsuit accusing it of misleading Belgian-French
bank Dexia SA into buying more than $1.6 billion of troubled
- JP Morgan Chase reports earnings on April 12th.
ESP Earnings Results
Now that you know which groups of stocks to focus on to increase
your chances of a positive surprise, let's look at the size of
the ESP that has historically generated the best results.
First, just having a positive ESP produces market beating
results. Over the last 10 years, using a 1 week holding period
(stocks were held for no more than one week after they reported),
the average annual return was 23.5%. This is in stark contrast to
stocks with a negative ESP which produced a -9.20% return.
Now apply the Zacks Rank of 1, 2 or 3 to that list and the
returns jump to 28.3%.
If you require your stocks to have an ESP of greater than 1%,
we found it increased performance to 29.6%. An ESP of greater
than 2% bumps performance up to 31.6%. While an ESP of greater
than 3%, produces an average annual return of 37.2%.
Note: there's no need to hold out for stocks with
significantly higher ESP's than 3%. While some stocks with higher
ESP's will do fantastic, there's no aggregate increase in
performance by ratcheting it up beyond d the 3% threshold. And as
the above stats illustrate, simply having a positive ESP (i.e.,
the Most Accurate Estimate is above the Consensus) still produces
stellar results with a high probability of success.
Start Using Zacks ESP in Your Own Trading Today
The next time your stock is about to report or a stock on your
watch list is getting closer to their earnings date, be sure to
look at its Zacks ESP and see what your stock's probabilities are
of producing a positive surprise.
If you prefer to let someone else do all the work and have the
best candidates sent to your inbox, learn more about
FEDEX CORP (FDX): Free Stock Analysis Report
HUNT (JB) TRANS (JBHT): Free Stock Analysis
JPMORGAN CHASE (JPM): Free Stock Analysis
ORACLE CORP (ORCL): Free Stock Analysis
PROGRESSIVE COR (PGR): Free Stock Analysis
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