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 I usually focus on sales and earnings growth when these reports come out. But now that we’re on the cusp of fourth-quarter earnings season, 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 for the impending earnings season.
To get to the point, here are five companies that have the analyst community buzzing, and they should be on your radar as well.
- Facebook Inc. (FB): In the past three months, estimates have been revised up 23%. Analysts now expect 47.5% annual sales growth and 58.8% earnings growth this quarter. FB is a strong buy.
- Melco Crown Entertainment (MPEL): In the past three months, estimates have been upwardly revised 12%. Analysts now expect 19.9% sales growth and 85% earnings growth. MPEL is a strong buy.
- Netflix Inc. (NFLX): In the past three months, estimates have been upwardly revised 41%. Analysts now expect 23.5% sales growth and 400% earnings growth. NFLX is a strong buy.
- Westlake Chemical Corp. (WLK): In the past three months, estimates have been revised up 13%. Analysts now expect 15.6% sales growth and 50% earnings growth this quarter. WLK is a buy.
- Nu Skin Enterprises Inc. (NUS): In the past three months, estimates have been revised up 17%. Analysts now expect 78.1% sales growth and 97.9% earnings growth. NUS is a strong buy.
To put these earnings estimates into perspective, analysts forecast that the average S&P 500 company will grow earnings by 8.8% this quarter. This means that each of the five buys above are well-positioned to win this earnings season, which kicks off today with Alcoa Inc.‘s (AA) earnings report after the close.
Of course, I’d also like to alert you to these big blue chips that have fallen in the eyes of the analyst community before they disappoint with their earnings reports.
- Avon Products Inc. (AVP): In the past three months, analysts have slashed their estimates by 19%. Avon Products is expected to see sales fall 8.1% and earnings plunge 18.9%. AVP is a sell.
- Coach Inc. (COH): In the past three months, analysts have reduced their estimates by 11%. Coach is now headed towards a 1.1% drop in sales and an 8.9% drop in earnings. COH is a sell.
- Hess Corp. (HES): In the past three months, analysts have slashed their estimates by 19%. Hess is due to post a 75% year-on-year drop in sales and just 7.5% annual earnings growth. HES is a hold.
- H&R Block Inc. (HRB): In the past two months, analysts have slashed their estimates from a profit of $0.01 per share to a loss of $0.08 per share. HRB is a hold.
- Target Corp. (TGT): In the past two months, analysts have cut their estimates by 15%. Target is now expected to see sales retreat 2.8% over last year and earnings fall nearly 16%. TGT is a sell.
Now a lot can happen in the weeks between now and these earnings announcements, 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.”