The second week of earnings season continues to give me mixed emotions. On one hand you have cautious outlooks coming from about 60% of companies and yet on the other there are some strong relative numbers sending stocks mostly higher. These conflicting messages can make trading extremely difficult.
It’s not just about the “number” itself
Tech bellwether Intel downgraded its growth outlook for the remainder of the year and AMD was a train wreck, but yet bank earnings have been relatively strong, with Bank of America, Goldman Sachs and J.P. Morgan all beating estimates. Even IBM and eBay beat estimates.
Our Research Director Sheraz Mian noted that total earnings for the 52 companies that have reported results as of Wednesday morning were down 2.3% from the same period last year.
The bottom line is that companies are making LESS money, but stocks have been climbing over the past week; further proving that expectation is really the key to finding a stock that not only surprises, but rallies. If a company under-promises and over-delivers, you have a recipe for a rally, even if they are making less than they did a year ago.
The secret to targeting the best companies is to not only find the candidates that are under-promising, but those that are most likely to over-deliver. Analysts can help us identify these targets and the Zacks ESP reading is the perfect place to start.
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 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).
Let’s check out a few bullish ESP candidates that report over the next week or so:
Bullish ESP Stocks
Zipcar (ZIP – Snapshot Report) is a Zacks Rank 3 stock with an earnings ESP of 200%. The Zacks consensus estimate is for 1.00, with the most accurate estimate at $2.00. They have managed to exceed analysts’ expectations by an average of 29% over the past four quarters.
Zipcar is the largest car sharing company in the world and recently expanded operations into China. They are growing in dense urban areas and around colleges where demand is high.
– Zipcar report earnings on July 16th AMC (after market close)
Capital City Bank (CCBG – Snapshot Report) is a Zacks Rank 2 stock with an earnings ESP of 190%. The Zacks consensus estimate is for 1.90, with the most accurate estimate at $3.61. Captial City has exceeded analysts’ expectations by an average of 14% over the past four quarters.
Capital City is a financial holding company engaged in the commercial and retail banking business, including accepting demand, savings and time deposits; extending credit; originating residential mortgage loans; and providing data processing services, asset management services, trust services, retail brokerage services and a broad range of other financial services to corporate and individual customers, governmental entities and correspondent banks.
– Capital City Bank report earnings on July 18th BMO (before market open).
KKR & Co. L.P. (KKR – Snapshot Report) is a Zacks Rank 2 stock with an earnings ESP of 50%. The Zacks consensus estimate is for Q2 EPS of $0.12, with the most accurate estimate at $0.18. KKR actually missed estimates 3 of the last four reports, but managed a 43% upside surprise last quarter.
It’s interesting to me that estimates are generally lower than they were 90 days ago and yet the stock is basically flat in that same time frame. This tells me that there are higher expectations for the stock and it may need to beat just to stay flat.
Kohlberg Kravis Roberts & Co. provides a range of asset management services to its investors and provides capital markets services to its firm, its portfolio companies and its clients. The Company operates private equity funds that take either controlling or strategic minority ownership positions for long-term appreciation; invests in leveraged loans, high-yield bonds and less liquid credit products; and, on behalf of portfolio companies, arranges equity and debt financing and offers capital market advice.
– KKR & Co reports earnings on July 27th BMO.
If this method sounds intriguing to you for improving your portfolios, consider Zacks Whisper Trader. 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.
Read the full analyst report on IBM
Read the full analyst report on CCBG