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Can Exfo (EXFO) Run Higher on Rising Earnings Estimates?

Exfo (EXFO) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are still raising their earnings estimates for the company.

Analysts' growing optimism on the earnings prospects of this telecommunications testing company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For Exfo, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.05 per share, which is a change of 0% from the year-ago reported number.

Over the last 30 days, one estimate has moved higher for Exfo compared to no negative revisions. As a result, the Zacks Consensus Estimate has increased 150%.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $0.08 per share, representing a year-over-year change of -33.33%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Exfo. Over the past month, two estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 160%.

Favorable Zacks Rank

The promising estimate revisions have helped Exfo earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Exfo because of its solid estimate revisions, as evident from the stock's 19.3% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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

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