Oall Street expects higher year-over-year earnings on the back of higher revenue when Verizon Communications (VZ) reports results for the quarter ended March 2022. While this widely known consensus outlook is important to gauge the company’s earnings, a powerful factor that could impact its stock price in the short term is how actual results compare to those estimates.
The stock could rise if these key numbers exceed expectations in the next earnings report, which is due out on April 22. On the other hand, if they fail, the stock could go down.
While the sustainability of the immediate price move and future earnings expectations will depend primarily on management discussing trading conditions on the earnings call, it is worth handicapping the likelihood of a positive surprise from the EPS.
Zacks consensus estimate
This largest US mobile operator is expected to post quarterly earnings of $1.35 per share in its next report, representing a year-over-year change of +3.1%.
Revenue is expected to be $33.38 billion, up 1.6% from the prior year quarter.
Trend of estimate revisions
The consensus EPS estimate for the quarter has been revised down 0.21% in the last 30 days from the current level. This essentially reflects how the covering analysts have collectively reassessed their initial estimates over this period.
Investors should keep in mind that the direction of revisions to estimates by each of the covering analysts may not always be reflected in the overall change.
Price, Consensus and EPS Surprise
Estimate revisions prior to a company’s earnings release provide clues to business conditions for the period for which earnings are released. This idea is at the heart of our proprietary surprise prediction model, the Zacks Earnings ESP (Expected Surprise Prediction).
The Zacks Earnings ESP compares the most accurate estimate to the Zacks consensus estimate for the quarter; the most accurate estimate is a more recent version of the Zacks Consensus EPS estimate. The idea here is that analysts revising their estimates just before the earnings release have the latest information, which could potentially be more accurate than they and other consensus contributors predicted earlier.
Thus, a positive or negative reading of the ESP on earnings theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only significant for positive ESP readings.
A positive earnings ESP is a good predictor of an earnings beat, especially when combined with a Zacks rank of #1 (strong buy), 2 (buy), or 3 (hold). Our research shows that stocks with this combination produce a positive surprise almost 70% of the time, and a strong Zacks ranking actually increases the predictive power of Earnings ESP.
Please note that a negative ESP reading on earnings is not indicative of a shortfall. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative ESP readings on earnings and/or a Zacks rating of 4 (sell) or 5 (strong sell).
How have the numbers evolved for Verizon?
For Verizon, the most accurate estimate is lower than the Zacks consensus estimate, suggesting analysts have recently turned bearish on the company’s earnings outlook. This translated into an ESP on revenue of -0.88%.
On the other hand, the stock currently carries a Zacks rank of No. 3.
Thus, this combination makes it difficult to conclusively predict that Verizon will exceed the BPA consensus estimate.
Does the history of the earnings surprise contain a clue?
When calculating estimates of a company’s future earnings, analysts often look at how closely it may have matched past consensus estimates. It is therefore worth taking a look at the surprise history to assess its influence on the number to come.
For the last reported quarter, Verizon was expected to post earnings of $1.28 per share when it actually generated earnings of $1.31, delivering a surprise +2.34%.
Over the past four quarters, the company has beaten consensus EPS estimates four times.
A beat or failure in earnings may not be the only basis for a stock to move higher or lower. Many stocks end up losing ground despite declining earnings due to other factors that disappoint investors. Likewise, unexpected catalysts help a number of stocks gain despite a shortfall.
That said, betting on stocks that are expected to exceed earnings expectations increases the odds of success. That’s why it’s worth checking a company’s ESP Earnings and Zacks Ranking before its quarterly release. Be sure to use our earnings ESP filter to discover the best stocks to buy or sell before they are released.
Verizon doesn’t seem like a compelling candidate to beat earnings. However, investors should also pay attention to other factors to bet on this stock or walk away from it before its results are released.
Stay on top of upcoming earnings announcements with Zacks Earnings Calendar.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.