The earnings pace as quickened this week and the results have
not be stellar. By Monday afternoon, only 34 of the
498 stocks in the S&P 500 had reported. Of those 34
companies we saw total earnings up +16% from the same period last
year, with 64.7% of them beating earnings expectations. Total
revenues for these companies are up +5.5% and 41.2% of them
reported positive top-line surprises.
As the week progressed, we saw revenue and earnings weakness
start to materialize a bit more withNokia (
) ,Intel (
) ,Bank of New York (
) , eBay (
) and others missing the mark. UnitedHealth saw their
first-quarter earnings fall 14% as higher medical bills continued
to outpace increased revenue, they were trading down today as
Order weakness was also seen in tech giantApple (
) , who saw its shares cut by 9% this week alone.
My three stock picks from last week, Goldman, Yahoo and
Blackstone, all beat Zacks EPS estimates, but are
struggling on market weakness and less than perfect earnings
reports. The reality is that markets are now extremely
finicky when it comes to dissecting results; companies must be
firing on all cylinders.
As we continue our search for stocks that have a high
likelihood of beating estimates, the Zacks Earnings ESP can be an
invaluable tool in your search.
Here are a few companies that look promising next week:
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
) is a Zacks Rank #3 stock with a positive earnings ESP of
33% for the current quarter. The company is expected to
make 3 cents a share, but our ESP readings are looking for a
profit of 4 cents.
This stock may be worth a look after Mattel announced
first-quarter net income more than quadrupled helped by strong
sales of dolls like Monster High, Disney Princess and American
Girl. The toy market must not be doing that poorly..
Hasbro recently announced collaboration with World Trade
Jewelers to create and distribute jewelry using Hasbro related
themes. This could help with their guidance which I believe
would be the Achilles heel of their upcoming report.
- Hasbro reports earnings on April 22nd
) is a Zacks Rank #3 stock with a positive earnings ESP of
6.02% for the current quarter; the Zacks Consensus is for a per
share profit of $0.83, with the most accurate at $0.88.
This education company is getting a fair amount of love from
analysts ahead of its report next week and the company has been
buying back a relatively large amount of shares. There is
no doubt that the space has struggled, but as some of its peers
are showing, a recovery might not be too far away.
The majority of analyst action has been bullish and we have
seen estimates on the rise for the current quarter, next quarter
as well as FY 2013 and FY 2014 since Devry's last report.
ESPs are also positive for those time frames.
- Devry reports earnings on April 23rd
USG Corp (
) is a Zacks Rank #2 stock with a positive earnings ESP of
54.55% for the current quarter. The Zacks consensus
estimate is for Q1 EPS of $0.11 with the most accurate estimate
coming in at $0.17.
The improvement in the housing market has helped push USG, a
large building materials supplier, higher over the last 12
months. The stock has defied gravity somewhat as it has
missed Zacks Consensus estimates 4 of the last 4 reports.
The company has been losing money, but is expected to get back
to profitability this quarter and make 65 cents a share this
year. Hopefully the robust housing data has helped propel
them closer to that goal.
Lower input costs should also help out their cause as
commodity prices have come down.
- USG reports earnings on April 24th
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
Jared A Levy is one of the most highly sought after traders in
the world and a former member of three major stock exchanges.
That is why you will frequently see him appear on Fox Business,
CNBC and Bloomberg providing his timely insights to other
investors. He has written and published two tomes,
"Your Options Handbook"
"The Bloomberg Visual Guide to Options"
. You can discover more of his insights and recommendations
through his two portfolio recommendation services:
Follow Jared A Levy on twitter @jaredalevy
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