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 first-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 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 14%. Analysts now expect 60.3% annual sales growth and 100% earnings growth this quarter. FB is a strong buy.
- Huntington Ingalls Industries Inc. (HII): In the past three months, estimates have been hiked up by 20%. Analysts now expect 3% sales growth and 85.1% earnings growth. HII is a strong buy.
- Melco Crown Entertainment (MPEL): In the past three months, estimates have been upwardly revised 11%. Analysts now expect 17.2% sales growth and 62.5% earnings growth. MPEL is a buy.
- Qihoo 360 Technology Co. (QIHU): In the past three months, analyst estimates have risen by 13%. Analysts now expect 106.5% sales growth and 142.9% earnings growth. QIHU is a strong buy.
- Southwest Airlines (LUV): In the past three months, estimates have been upwardly revised 14%. Analysts now expect 2.4% sales growth and 128.6% earnings growth. LUV is a strong buy.
To put these earnings estimates into perspective, analysts forecast that the average S&P 500 company will grow earnings by 0.3% this quarter. This means that each of the five buys above are well-positioned to win this earnings season, which kicks off on April 8 with Alcoa Inc.‘s (AA) earnings report after the close.
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.”