Why Cognizant (CTSH) Could Beat Earnings Estimates Again
If you are looking for a stock that has a solid history of beating earnings estimates and is in a good position to maintain the trend in its next quarterly report, you should consider Cognizant (CTSH). This company, which is in the Zacks Business - Software Services industry, shows potential for another earnings beat.
This information technology consulting and outsourcing firm has an established record of topping earnings estimates, especially when looking at the previous two reports. The company boasts an average surprise for the past two quarters of 12.47%.
For the most recent quarter, Cognizant was expected to post earnings of $0.68 per share, but it reported $0.82 per share instead, representing a surprise of 20.59%. For the previous quarter, the consensus estimate was $0.92 per share, while it actually produced $0.96 per share, a surprise of 4.35%.
Price and EPS Surprise
For Cognizant, estimates have been trending higher, thanks in part to this earnings surprise history. And when you look at the stock's positive Zacks Earnings ESP (Expected Surprise Prediction), it's a great indicator of a future earnings beat, especially when combined with its solid 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.
Cognizant currently has an Earnings ESP of +2.22%, which suggests that analysts have recently become bullish on the company's earnings prospects. This positive Earnings ESP when combined with the stock's Zacks Rank #2 (Buy) indicates that another beat is possibly around the corner. We expect the company's next earnings report to be released on October 28, 2020.
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.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Cognizant Technology Solutions Corporation (CTSH): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.