What to know before the release of the first quarter

The market expects CNH Industrial (CNHI) to report lower year-over-year profits due to lower revenue when it reports results for the quarter ending March 2022. This consensus outlook widely known is important in gauging company earnings, but a powerful factor that could influence its course in the short term is how actual results compare to those estimates.

The stock could rise if those key numbers exceed expectations in the next earnings report, which is due out on May 3. On the other hand, if they fail, the stock could go down.

While management’s discussion of trading conditions in the earnings call will primarily determine the sustainability of the immediate price move and future earnings expectations, it’s worth a crippling glimpse of the chances of a positive surprise from BPA.

Zacks consensus estimate

This truck, tractor and bus maker is expected to post quarterly earnings of $0.25 per share in its upcoming report, representing a year-over-year change of -21.9%.

Revenue is expected to be $4.63 billion, down 38.1% from the year-ago quarter.

Trend of estimate revisions

The consensus EPS estimate for the quarter has been revised upwards by 1.33% in the past 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

Price, consensus and EPS surprise chart for CNHI

Revenue whisper

Estimate revisions prior to a company’s earnings release provide clues to business conditions for the period for which earnings are released. Our proprietary surprise prediction model – the Zacks Earnings ESP (Expected Surprise Prediction) – is based on this idea.

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 CNH?

For CNH, the most accurate estimate is above the Zacks consensus estimate, suggesting that analysts have recently become optimistic about the company’s earnings outlook. This translated into an ESP on earnings of +8.76%.

On the other hand, the stock currently carries a Zacks rank of No. 3.

Thus, this combination indicates that CNH will most likely 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, CNH was expected to post a profit of $0.21 per share when it actually produced a profit of $0.25, providing a surprise of +19.05%.

Over the past four quarters, the company has beaten consensus EPS estimates four times.

Conclusion

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. Similarly, 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 it’s quarterly release. Be sure to use our earnings ESP filter to discover the best stocks to buy or sell before they are released.

CNH emerges as a compelling candidate to beat profits. However, investors should also pay attention to other factors to bet on this stock or walk away from it before its results are released.

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