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Why CDK Global (CDK) Could Beat Earnings Estimates Again

Have you been searching for a stock that might be well-positioned to maintain its earnings-beat streak in its upcoming report? It is worth considering CDK Global (CDK), which belongs to the Zacks Computers - IT Services industry.

This provider of technology and marketing services to auto dealers has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average surprise for the last two quarters was 2.35%.

For the most recent quarter, CDK Global was expected to pos t earnings of $0.88 per share, but i t report ed $0.89 per share instead, representing a surprise of 1.14%. For the previous quarter, the consensus estimate was $0.84 per share, while it actually produced $0.87 per share, a surprise of 3.57%.

Price and EPS Surprise

With this earnings history in mind, recent estimates have been moving higher for CDK Global. In fact, the Zacks (Expected Surprise Prediction) for the company is positive, which is a great sign of an earnings beat, especially when you combine this metric with its nice Zacks Rank.

With this earnings history in mind, recent estimates have been moving higher for CDK Global. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the company is positive, which is a great sign of an earnings beat, especially when you combine this metric with its nice Zacks Rank.

Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time . In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate could be as high as seven.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

CDK Global has an Earnings ESP of +0.78% at the moment, suggesting that analysts have grown bullish on its near-term earnings potential. When you combine this positive Earnings ESP with the stock's Zacks Rank #3 (Hold), it shows that another beat is possibly around the corner. The company's nex t earnings report is expected to be released on February 5, 2019.

When the Earnings ESP comes up negative, investors should note that this will reduce the predictive power of the metric. But, a negative value is not indicative of a stock's earnings miss.

Many companies end up beating the consensus EPS estimate, but that may not be the sole basis for their stocks moving higher. On the other hand, some stocks may hold their ground even if they end up missing the consensus estimate.

Because of this, it's really important to check a company's Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

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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.


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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