Morningstar Inc. MORN is set to report first-quarter 2015 results on Apr 22. Last quarter, it posted a 12.70% positive earnings surprise. Let’s see how things are shaping up for this announcement.
Factors at Play
Morningstar’s fourth-quarter earnings of 71 cents sailed past the Zacks Consensus Estimate of 63 cents. Moreover, it increased 6% from the prior quarter and 4.4% on a year over year basis. The company’s consolidated revenues of $196.4 million were up 1.7% sequentially and 8.8% from the year-ago quarter.
The results were driven by strong performance of Morningstar Direct and Morningstar Credit Ratings, the structured credit research and ratings businesses of the company. Furthermore, the company’s investments in late 2013 and early 2014 to support key growth initiatives paid dividends.
Also, synergies from the acquisitions of ByAllAccounts, Inc. and HelloWallet Holdings, Inc. will enable the company to serve its core customer groups more efficiently and effectively, with a corresponding benefit to results.
Settlement of the lawsuit with Business Logic is also an added benefit as management can focus on growth without any risk, disturbance and litigation.
Earnings Whispers?
Our proven model does not conclusively show that Morningstar will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate stand at 68 cents. Therefore, the Earnings ESP for the stock is 0.00%.
Zacks Rank: Morningstar has a Zacks Rank #3 (Hold) which when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
You can consider the following stocks with a favorable combination of a positive Earnings ESP and Zacks Rank #1, 2 or 3:
Broadcom Corp. BRCM, with an Earnings ESP of +5.00% and a Zacks Rank #1 (Strong Buy).
Infinera Corporation INFN, with an Earnings ESP of +20.00% and a Zacks Rank #1.
Cognex Corporation CGNX, with an Earnings ESP of +4.35% and a Zacks Rank #1.
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