Crush Earnings Expectations with These 5 Proven Winners

Earnings Surprise: The Secret Sauce for Beating Market Expectations

As investors eagerly await the upcoming earnings season, they are on the lookout for stocks that have a high potential to beat market expectations. This is because a positive earnings surprise can send a stock soaring higher, making it an attractive investment opportunity. Historically, companies with solid quarterly earnings tend to perform well when their actual results exceed analyst estimates.

However, it’s essential to note that not all positive surprises are created equal. Earnings growth rates can be misleading if they don’t take into account seasonal fluctuations and decelerating trends. For instance, a company may report a strong Q4 due to favorable seasonality but struggle in Q1, leading to a decline in sequential earnings growth.

Wall Street analysts project earnings estimates based on their analysis of companies’ financials and initiatives. When these projections are met or exceeded by the actual results, it can be seen as an achievement in itself, especially if the margin of earnings surprise is substantial.

How to Find Stocks that Can Beat

Finding stocks with a high potential for beating market expectations requires meticulous research and analysis. One way to identify such companies is to examine their past performance in terms of earnings surprises. An impressive track record in this regard can be an indicator of the company’s ability to consistently surpass estimates, making it more likely to repeat the feat.

To screen for stocks that have a high potential for beating market expectations, several criteria must be met. The primary screening parameters used were:

• Last EPS Surprise greater than or equal to 10%: This indicates that the company has delivered a significant earnings surprise in its previous quarter.
• Average EPS Surprise in the last four quarters greater than 20%: By setting this bar higher, we ensured that only companies with an impressive track record of consistently surpassing estimates were considered.
• Average EPS Surprise in the last two quarters greater than 20%: This criterion further emphasizes the importance of a consistent surprise history and makes it more likely that the company will repeat its previous performance.
• Zacks Rank less than or equal to 2: Only companies with a strong buy or buy rating can meet this requirement, indicating their potential for future growth.
• Earnings ESP greater than zero: A positive earnings surprise estimate and a favorable Zacks rank are necessary conditions for an earnings beat to occur.
• Next 3-5 Years Estimated EPS Growth (Per Year) greater than 10%: Solid expected earnings growth indicates the company’s long-term growth prospects.
• Average 20-day Volume greater than 100,000: High trading volume implies that the stock has adequate liquidity.

The combination of these criteria narrowed down the universe from over 7,700 stocks to a select group of 15. From this list, five standout companies with an impressive earnings surprise history and strong growth prospects are:

Urban Outfitters (URBN)

As one of the largest e-commerce providers, Urban Outfitters has operations spanning North America and globally expanding. With a Zacks Rank #1 and average earnings surprise of 29.00% over the past four quarters, this company demonstrates its ability to consistently exceed estimates.

Tenet Healthcare (THC)

Tenet Healthcare is an investor-owned healthcare services company that owns and operates general hospitals and related facilities across multiple states. With a Zacks Rank #2 and average earnings surprise of 26.39% over the past four quarters, this company has shown its capacity to meet market expectations.

Five9 (FIVN)

As a cloud software provider for contact centers, Five9 offers products such as workforce management, speech recognition, predictive dialer, and voice applications. With a Zacks Rank #1 and average earnings surprise of 19.26% over the past four quarters, this company has demonstrated its ability to consistently surprise analysts.

Marqeta (MQ)

Marqeta provides online card and payment processing services, boasting a Zacks Rank #2 and average earnings surprise of 24.43% over the past four quarters. This indicates its capacity for meeting market expectations.

Exelixis (EXEL)

As an oncology-focused biotechnology company, Exelixis primarily focuses on the discovery, development, and commercialization of new drugs for treating difficult-to-treat cancers. With a Zacks Rank #2 and average earnings surprise of 48.60% over the past four quarters, this company has demonstrated its ability to significantly exceed analyst estimates.

These companies offer compelling investment opportunities due to their consistent track records of delivering positive earnings surprises and demonstrating strong growth prospects.