If you’ve used my Portfolio Grader tool or have kept up with this blog, you know that I put a lot of weight on what analysts are saying about any given stock. And an effective way to judge how the analyst community feels about a stock is tracking their earnings estimates for the quarter.
Upward revisions are an important indicator of a company’s future success. You see, analysts are paid to estimate a company’s earnings outlook. If an analyst makes a wrong estimate that ends up costing investors money, that analyst could be out of a job. If a number of Wall Street analysts start to move their forecasts higher, it’s a good bet that the stock will outperform expectations and deliver market-beating returns to investors since positive revisions are never made lightly.
I know that during earnings season, I focus mainly on sales and earnings growth. But even though we’re in the lull between earnings, we’re seeing interesting analyst activity regarding some of the hottest names on Wall Street. While the market may have not reacted to these upgrades (and downgrades) just yet, I want you to be prepared for what’s to come the next earnings season.
That being said, here are five companies that have the analyst community buzzing, and they should be on your radar as well.
- Equinix Inc. (EQIX): In the past two months, estimates have been revised up 19%. Analysts now expect 15.5% sales growth and 12.7% earnings growth this quarter. EQIX is a buy.
- Liberty Global Inc. (LBTYA): In the past two months, the consensus estimate has gapped up 80%. Analysts now expect 7% sales growth and 400% earnings growth. LBTYA is a buy.
- Michael Kors Holdings Ltd. (KORS): In the past two months, analysts have increased their average estimate by 22%. The consensus now calls for 43.9% sales growth and 77.3% earnings growth. KORS is a buy.
- Progressive Corp. (PGR): In the past two months, estimates have been hiked up 16%. Analysts now expect 6.7% sales growth and 29.4% earnings growth. PGR is a buy.
- Sirius XM Radio Inc. (SIRI): In the past three months, the consensus estimate has jumped 50%. Analysts now forecast 13% sales growth and 50% earnings growth. SIRI is a buy.
To put these earnings estimates into perspective, analysts forecast that the average S&P 500 company will grow earnings by 1.5% this quarter. This means that each of the five buys above are well-positioned to win big next earnings season, which kicks off around the first week of April.
Of course, I’d also like to alert you to these big blue chips that have fallen in the eyes of the analyst community.
- Capital One Financial Corp. (CCL): In the past three months, analysts have revised their estimates down by 11%. COF is a sell.
- Carnival Corp. (CCL): In the past week, analysts have slashed their estimates by 55%. CCL is a hold.
- Caterpillar Inc. (CAT): In the two months, analysts have reduced their estimates by 18%. CAT is a strong sell.
- General Motors Inc. (GM): In the past two months, analysts have cut their estimates by 23%. GM is a hold.
- Staples Inc. (SPLS): In the past month, analysts have cut their estimates by 13%. SPLS is a sell.
Now a lot can happen in the weeks between now and first-quarter earnings season, so there is a chance that some of these will firm up before then. However, in the meantime I see no reason to hold stocks that are underperforming their peers, especially when so many premium stocks are still on sale.
If you want to see how the analyst community feels about one of your holdings, feel free to run it through my Portfolio Grader screening tool. After hitting "submit," you’ll see that one of the components of the stock’s Fundamental Grade is "Analyst Earnings Revisions."