We expect Archer Daniels Midland Company (ADM) to beat expectations when it reports fourth-quarter 2014 results on Feb 3 before the opening bell.
Why a Likely Positive Surprise?
Our proven model shows that Archer Daniels is likely to beat earnings because it has the right combination of two key components.
Zacks ESP: Archer Daniels currently has an Earnings ESP of +3.30%. This is because the Most Accurate estimate stands at 94 cents per share, while the Zacks Consensus Estimate is pegged at 91 cents. This is a meaningful and leading indicator of a likely positive earnings surprise for the company.
Zacks Rank: Archer Daniels carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1, 2 and 3 have a significantly higher chance of beating earnings. Conversely, the Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Archer Daniels’ Zacks Rank #3 and Earnings ESP of +3.30% makes us confident of a positive earnings beat.
What is Driving Better-Than-Expected Earnings?
Archer Daniels’ earnings in the previous quarter benefited from strong ethanol demand as well as improvement in U.S. grain export volumes. Earnings also benefited from its cost containment measures as the increase came despite a fall in revenue. This increases our confidence in the company’s cost containment efforts and cash flow generating capacity. Further, we believe that the company's constant focus on enhancing its processing capabilities and global footprint through strategic acquisitions and joint ventures bodes well for its growth. Hence, we remain optimistic about Archer-Daniels' performance in this quarter.
Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Bebe Stores Inc. (BEBE) has an Earnings ESP of +50.00% and a Zacks Rank #1 (Strong Buy).
Chipotle Mexican Grill Inc. (CMG) has an Earnings ESP of +3.18% holds a Zacks Rank #2 (Buy).
J. C. Penney Company Inc. (JCP) has an Earnings ESP of +23.08% and a Zacks Rank #2.
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