As May began, astute investors started looking for companies demonstrating steady earnings growth as a sign of solid profitability. However, earnings acceleration is even more impactful and often serves as a stronger catalyst for driving stock prices higher. Studies indicate that top-performing stocks typically exhibit earnings acceleration before their share prices rise.
To that end, ANI Pharmaceuticals, Inc. ANIP, Cummins Inc. CMI and Seadrill Limited SDRL are showing strong earnings acceleration this month.
Earnings Acceleration Simplified
Earnings acceleration is the incremental growth in a company’s earnings per share (EPS). In other words, if a company’s quarter-over-quarter earnings growth rate increases within a stipulated time frame, it can be called earnings acceleration.
In the case of earnings growth, you pay for something that is already reflected in the stock price. However, earnings acceleration helps identify stocks that haven’t yet caught investors' attention and, once secured, will invariably lead to a rally in share price. This is because earnings acceleration considers both the direction and magnitude of growth rates.
An increasing percentage of earnings growth means that the company is fundamentally sound and has been on the right track for a considerable period. Meanwhile, a sideways percentage of earnings growth indicates a period of consolidation or slowdown, while a decelerating percentage of earnings growth may drag prices down.
Research Wizard Screening Parameters
Look at stocks for which the last two quarter-over-quarter percentage EPS growth rates exceed the previous periods’ growth rates. The projected EPS growth rate for the upcoming quarter is expected to exceed that of prior periods.
EPS % Projected Growth (Q1)/(Q0) greater than EPS % Growth (Q0)/(Q-1): The projected growth rate for the current quarter (Q1) over the completed quarter (Q0) has to be greater than the growth rate from the completed quarter (Q0) over one quarter ago (Q-1).
EPS % Growth (Q0)/(Q-1) greater than EPS % Growth (Q-1)/(Q-2): The growth rate for the completed quarter (Q0) over one quarter ago (Q-1) has to be greater than the growth rate from one quarter ago (Q-1) over two quarters ago (Q-2).
EPS % Growth (Q-1)/(Q-2) greater than EPS % Growth (Q-2)/(Q-3): The growth rate from one quarter ago (Q-1) over two quarters ago (Q-2) has to be greater than the growth rate from two quarters ago (Q-2) over three quarters ago (Q-3).
In addition to this, we have added the following parameters:
Current Price greater than or equal to $5: This screens out low-priced stocks.
Average 20-day volume greater than or equal to 50,000: High trading volume implies that the stocks have adequate liquidity.
The above criteria narrowed the universe of around 7,735 stocks to only 13. Here are three of the 13 stocks:
ANI Pharmaceuticals
ANI Pharmaceuticals develops, manufactures and markets branded and generic drugs in the U.S. and global markets. ANIP’s expected earnings growth rate for the current year is 14.3%. Currently, the company has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cummins
Cummins provides global power solutions through five segments: Engine, Distribution, Components, Power Systems and Accelera. CMI’s expected earnings growth rate for the current year is 9.6%. Currently, the company has a Zacks Rank #1.
Seadrill Limited
Seadrill Limited provides offshore drilling services to the global oil and gas industry. SDRL’s expected earnings growth rate for the current year is 179.2%. Currently, the company has a Zacks Rank #3.
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Free: See Our Top Stock And 4 Runners UpCummins Inc. (CMI) : Free Stock Analysis Report
Seadrill Limited (SDRL) : Free Stock Analysis Report
ANI Pharmaceuticals, Inc. (ANIP) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
