TransEnterix (TRXC) can be a solid choice for investors, given its recent update to Zacks Rank # 2 (Buy). This change in rating essentially reflects an upward trend in earnings estimates – one of the most powerful forces affecting stock prices.
The only determinant of the classification of Zacks is the change in the company’s earnings chart. The consensus estimate of Zacks – the consensus of EPS estimates from sell-side analysts covering the shares – for the current and subsequent years is monitored by the system.
Individual investors often find it difficult to make decisions based on rating rises by Wall Street analysts, as these are driven primarily by subjective factors that are difficult to see and measure in real time. In these situations, the Zacks rating system is useful because of the power of an ever-changing earnings framework to determine short-term stock price movements.
Therefore, the upgrade of Zacks’ rating to TransEnterix basically reflects the positive outlook on its earnings outlook, which can translate into buying pressure and an increase in its share price.
Most powerful force affecting stock prices
The change in a company’s future profit potential, as reflected in the revisions to profit estimates, and the short-term price movement of its shares are strongly correlated. The influence of institutional investors partially contributes to this relationship, since these great professionals use revenues and profit estimates to calculate the fair value of a company’s shares. An increase or decrease in profit estimates in their valuation models simply results in a higher or lower fair value for a stock, and institutional investors usually buy or sell it. The transaction of large quantities of shares, then, leads to a price movement for the shares.
For TransEnterix, rising earnings estimates and the consequent upgrade in rank mean fundamentally an improvement in the company’s underlying businesses. And investors’ appreciation for this trend of improving business should drive stocks higher.
Harnessing the power of earnings estimate revisions
As empirical research shows a strong correlation between trends in revised profit estimates and short-term stock movements, tracking these revisions to make an investment decision can be truly rewarding. This is where the tried and tested Zacks Rank stock rating system plays an important role, as it effectively harnesses the power of revised earnings estimates.
The Zacks Rank stock rating system, which uses four factors related to earnings estimates to classify stocks into five groups, ranging from Zacks Rank # 1 (Strong Buy) to Zacks Rank # 5 (Strong Sell), has an impressive track Record externally audited, with Zacks Rank # 1 shares generating an average annual return of + 25% since 1988. You can see the complete list of today’s Zacks # 1 Rank (strong buy) shares here >>>>.
Earnings Estimation Reviews for TransEnterix
This manufacturer of surgical robots and medical instruments is expected to earn – $ 0.72 per share in the fiscal year ending December 2020, representing an annual variation of 82.9%.
Analysts have steadily increased their estimates for TransEnterix. In the past three months, Zacks’ consensus estimate for the company has increased by 19%.
Bottom line
Unlike overly optimistic Wall Street analysts, whose rating systems tend to be weighted toward favorable recommendations, the Zacks rating system maintains an equal proportion of ‘buy’ and ‘sell’ ratings for its entire universe of more 4,000 shares at any time. Regardless of market conditions, only 5% of the shares covered by Zacks obtain a ‘Strong Buy’ rating and the next 15% receive a ‘Buy’ rating. Therefore, the placement of a share in the top 20% of the shares covered by Zacks indicates its superior profit estimate review feature, making it a solid candidate to produce superior returns to the market in the short term.
You can learn more about Zacks Rank here >>>
TransEnterix’s update to Zacks Rank # 2 places it among the top 20% of the shares covered by Zacks in terms of revision estimates, which implies that stocks may rise in the short term.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 best stocks for the next 30 days. Click to get this free report
To read this article on Zacks.com click here.