Cloudflare (NET) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.
Analysts' growing optimism on the earnings prospects of this web security and content delivery 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 -- is principally built on this insight.
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 Cloudflare, strong agreement among the covering analysts in revising earnings estimates upward has resulted in meaningful improvement in consensus estimates 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
The company is expected to earn $0.27 per share for the current quarter, which represents a year-over-year change of +28.6%.
The Zacks Consensus Estimate for Cloudflare has increased 37.14% over the last 30 days, as one estimate has gone higher compared to no negative revisions.
Current-Year Estimate Revisions
For the full year, the earnings estimate of $1.20 per share represents a change of +29.0% from the year-ago number.
In terms of estimate revisions, the trend for the current year also appears quite encouraging for Cloudflare. Over the past month, two estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 157.9%.
Favorable Zacks Rank
The promising estimate revisions have helped Cloudflare earn a Zacks Rank #2 (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 Cloudflare because of its solid estimate revisions, as evident from the stock's 13.8% 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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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.
