With earnings season in full swing, I decided to look at the coming week and see what looks interesting. My definition of "interesting" is not what the absolute results will look like, or even what the year-over-year growth looks like it will be. That sort of data is "in the stocks," and share prices will not react to results that meet expectations. We are looking for names for which the expectations could be wrong, whether positively or negatively. Missing expectations in either direction is the catalyst that can move a stock and generate trading profits.
In order to get down to a manageable universe, let's look at next week's scheduled reports among S&P 500 companies. 126 S&P-listed companies are set to report, which should be a sufficiently rich universe from which to mine ideas. In order to see where consensus is rapidly changing, I checked the first-quarter earnings-per-share estimate as of Thursday night against that same estimate one month earlier. Of our group, four stocks have seen estimates rising more than 10% in the last month, while targets for 14 have declined more than 10%. These names are candidates for either an upside or downside surprise, respectively.
The list is fairly heavy on energy-related names, especially refiners, so beware of others in the group that may surprise to the downside as well.
An equally interesting metric to study is the dispersion in EPS estimates. For any given company, a larger spread between the high and low EPS estimate indicates greater uncertainty about the results, while a tighter spread indicates greater certainty. On Monday morning, we'll look at the names reporting next week and see whose results were getting more certain over the last month, and those whose results are more in question.
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