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.
- Avago Technologies Ltd. (AVGO): Over the past three months the analyst community has revised the consensus earnings estimate from $0.84 per share to $1.04 per share. This represents a 24% increase! As it stands, Avago Technologies is expected to post 110% year-on-year sales growth and 40.5% earnings growth. This is while the industry as a whole is headed towards just 11.8% annual earnings growth. So I’m counting down the days until the company’s fiscal third-quarter earnings report in late August. AVGO is an A-rated strong buy.
- Chesapeake Energy Corp. (CHK): Over the past 90 days the consensus EPS estimate has jumped from $0.43 to $0.50–a 16% increase! Currently Chesapeake Energy Corp. is expected to see earnings fall 2% compared with the year ago quarter but this company does have a history of surprising analysts. The company is slated to release second-quarter results in the first week of August. CHK is a B-rated buy.
- Delta Air Lines Inc. (DAL): Over the past three months the consensus estimate has climbed $0.20 to $1.03 EPS. Delta Air Lines is expected to post 5.1% year-on-year earnings growth and 9.2% sales growth when it releases second-quarter results before market open on July 23. DAL is an A-rated strong buy.
- Intel Corp. (INTC): In the past 90 days the consensus estimate has jumped from $0.43 EPS to $0.52 EPS, or by a whopping 21%. Intel Corp. is headed towards 33.3% year-on-year earnings growth and 6.8% sales growth for its second-quarter report, due out on July 15. INTC is a B-rated buy.
- Vipshop Holdings Ltd. (VIPS): Over the past 60 days, the analyst community has revised the consensus earnings estimate 28% higher to $0.64 per share. Compared with the year ago quarter this works out to 220% bottom-line growth. This is while the industry as a whole is expected to see a 10% bottom-line contraction for the quarter. Vipshop is also headed towards 124.7% top-line growth, so it’s small wonder why I’m looking forward to when the company releases this report in mid-August. VIPS is an A-rated strong buy.
To put these earnings estimates into perspective, analysts forecast that the average S&P 500 company will grow earnings by 6.1% this quarter. This means that each of the five buys above are well-positioned to win this earnings season, which kicks off on July 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.”