Right now it seems like the path of least resistance for US equities is up! The S&P 500 is maintaining its upward trajectory and remains in the bullish channel that it has been running in for the past three months.
Although the U.S. equity market looks strong, I wouldn’t contribute all of the recent momentum to earnings.
We are rounding out the Q2 (reporting) earnings season and have now seen roughly 90% of the companies in the S&P report. The trend remains the same; overall earnings per share are up 5.2%, but revenues are down. In fact only 36% of companies were able to beat the relatively low estimates set out for them. These figures are not typical to a healthy growing economy.
There are even more earnings caveats; the finance sector bore the majority of growth for the S&P and if you remove that sector from the calculation, overall EPS growth is actually negative year over year. Also keep in mind that many firms have reduced their 2012 guidance and warned about FY2013, which makes the future even murkier and if you were to use last quarter’s analyst estimates, the majority of equities would have missed the street’s expectations.
For more detail, read Sheraz Mian’s full earnings report HERE.
Even with all that, my Whisper Trader earnings service has been spot on this season and has only picked 2 stocks that didn’t beat (1 met, 1 missed) expectations out of the 15 trades that we put on. The struggle that we have found was with the FY2012 estimates and beyond. Cautious and perhaps apprehensive would be the best words to describe corporate expectations for the longer term. Unfortunately for us, cautious words were often met with investor malaise and selling pressure, so I think it’s safe to invest with extreme caution if you are buying ahead of an earnings report.
Let’s check out a few bullish earnings ESP candidates that report over the next week or so:
About Zacks Earnings ESP
Earnings ESP is Zacks’ proprietary methodology for determining which stocks have the best chance to surprise with their next earnings announcement. The Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus.
The Zacks ESP helps predict earnings surprises to the upside and downside; the greater the ESP (positive or negative) the greater the likelihood for a surprise.
I use ESP to help quantify the conviction of the analysts for a surprise and stack the odds in my favor when I combine it with other measurements and statistics.
This can work for bullish potential surprises (positive ESP) as well as bearish surprises (negative ESP).
Bullish ESP Stocks
NGL Energy Partners (NGL) is a Zacks Rank 2 (Buy) stock with a Q2 earnings ESP of 29.27%. Their FY2013 ESP is actually a negative 41.27%, which is not generally what you want to see when looking for an earnings surprise, but much of their projected weakness may have already been factored into shares.
Natural Gas has also enjoyed quite a really over the past few months and many experts see that continuing.
The Zacks consensus estimate is for a loss of 41 cents this quarter, with the most accurate estimate projecting a loss of only 29 cents. NGL has dissapoointed analysts for the past four quarters and missed estimates by an average of 252%. Keep in mind that the percentage number may seem higher because they have been flip-flopping beteen positive and negative results which adds a dramatic skew to % change.
NGL Energy Partners LP is a limited partnership operating a vertically-integrated propane business with three operating segments: retail propane; wholesale supply and marketing; and midstream. The Retail Propane segment engages in retail marketing, sale, and distribution of propane, including the sale and lease of propane tanks, equipment, and supplies to residential, agricultural, commercial, and industrial customers through customer service locations.
Their Wholesale Supply and Marketing segment supplies propane and other natural gas liquids, as well as provides related storage to retailers, wholesalers, and refiners. The Midstream segment involves in the delivery of propane from pipelines or trucks to propane terminals and transfers the propane to third-party transport trucks for delivery to retailers, wholesalers, or other consumers.
– Sunoco reports earnings on August 13th AMC (after market close). Read Analyst Details Here
Nationstar Mortgage Holdings Inc (NSM) is a non- ranked stock with a Q2 earnings ESP of 22.58%. The Zacks consensus estimate is for Q2 earnings of $0.31, with the most accurate estimate at $38. Even though recent analyst upgrades and downgrades are fairly newutral, the recent downgrade by Stern Agee still puts their estimates 7 cents ahead of the consensus coming into their report next week.
The sector has also been enjoying fundamental strength as new home sales creep higher and refinances increase due to refinancing.
Analyst momentum also looks bullish for the current and next quarters as well as FY2012 and FY2013 and ESPs are all higher for those periods as well.
Nationstar Mortgage Holdings Inc. is a non-bank residential mortgage servicer with a range of services across the residential mortgage product spectrum. As of December 31, 2011, the Company serviced over 645,000 residential mortgage loans.
Nationstar’s clients include national and regional banks, government organizations, securitization trusts, private investment funds and other owners of residential mortgage loans and securities. It is a partner of financial organizations, including government-sponsored enterprises (GSEs) and other regulated institutions. The Company is a licensed servicer in all 50 states. In addition to its core servicing business and operates a fully integrated loan originations platform and suite of adjacent businesses.
– NSM reports earnings on August 14th BMO (Before Market Open). Read Analyst Details Here
Isle of Capri Casinos (ISLE) is a Zacks Rank 2 (Buy) stock with a Q2 earnings ESP of 10%. The Zacks consensus estimate is for Q2 EPS of $0.10, with the most accurate estimate at $0.11. Isle of Capri has reported two strong earnings reports back to back, averaging a 48% beat over Zacks estimates.
Zacks Earnings ESP is positive for this quarter as well as FY2012 and FY2013; Q3 may be a questionable quarter for results as the Zacks ESP is slightly negative.
Analyst momentum has been bullish for ISLE as the stock has seen substantial increases in estimates over the past 60 days. Perhaps Isle’s lower priced casinos are drawing in cost conscious customers in this time of economic uncertainly.
Isle of Capri Casinos is a developer, owner and operator of branded gaming and related lodging and entertainment facilities in growing markets in the United States. The company wholly or partially owns and operates gaming facilities under the name Isle of Capri. In addition, the company wholly owns and operates a pari-mutuel harness racing facility and owns interests in and operates gaming activities aboard a cruise ship based.
– Isle of Capri Casinos reports earnings on August 23rd BMO. Read Analyst Details Here
If this method sounds intriguing to you for improving your portfolios, consider the Zacks Whisper Trader service. Not only do I use Earnings ESP but I also include some other critical factors to create the “secret sauce” I use to achieve 77.96% accuracy in identifying positive earnings surprises … before they’re reported.
Learn more about Whisper Trader now.
Senior Equities Strategist, Jared Levy, is the editor of Whisper Trader and can show you how to use the power of Zacks Earnings ESP and earnings surprises for timely, steady gains.