If you are looking for a stock that has a solid history of beating earnings estimates and is in a good position to maintain the trend in its next quarterly report, you should consider Southwest Airlines (LUV). This company, which is in the Zacks Transportation – Airline industry, shows potential for another earnings beat.
When looking at the last two reports, this airline has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 8.12%, on average, in the last two quarters.
For the last reported quarter, Southwest came out with earnings of $1.37 per share versus the Zacks Consensus Estimate of $1.35 per share, representing a surprise of 1.48%. For the previous quarter, the company was expected to post earnings of $0.61 per share and it actually produced earnings of $0.70 per share, delivering a surprise of 14.75%.
Price and EPS Surprise
Thanks in part to this history, there has been a favorable change in earnings estimates for Southwest lately. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the stock is positive, which is a great indicator of an earnings beat, particularly when combined with its solid Zacks Rank.
Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate could be as high as seven.
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.
Southwest currently has an Earnings ESP of +0.22%, which suggests that analysts have recently become bullish on the company’s earnings prospects. This positive Earnings ESP when combined with the stock’s Zacks Rank #3 (Hold) indicates that another beat is possibly around the corner. We expect the company’s next earnings report to be released on October 24, 2019.
Investors should note, however, that a negative Earnings ESP reading is not indicative of an earnings miss, but a negative value does reduce the predictive power of this metric.
Many companies end up beating the consensus EPS estimate, but that may not be the sole basis for their stocks moving higher. On the other hand, some stocks may hold their ground even if they end up missing the consensus estimate.
Because of this, it’s really important to check a company’s Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment