Micron (MU) is expected to post a year-over-year increase in earnings on higher revenues when reporting the results for the quarter ended in November 2020. This widely known consensus perspective gives a good sense of the company’s earnings picture, but as the actual results compared to these estimates are a powerful factor that can impact stock prices in the short term.
The earnings report, due to be released on January 7, 2021, may help stocks rise if those key numbers are better than expectations. On the other hand, if they get it wrong, the action could fall.
Although management’s discussion of business conditions in the earnings call will primarily determine the sustainability of the immediate price change and expectations of future earnings, it is worthwhile to take a limiting view of the chances of a positive surprise at the LPA.
Zack’s consensus estimate
This chip maker is expected to post quarterly earnings of $ 0.71 per share in its next report, which represents a year-on-year change of + 47.9%.
Revenue is expected to be $ 5.73 billion, an increase of 11.4% over the previous year’s quarter.
Review trend estimate
The EPS consensus estimate for the quarter has been revised 53.22% higher in the past 30 days to the current level. This is essentially a reflection of how coverage analysts collectively reevaluated their initial estimates over that period.
Investors should keep in mind that an aggregate change may not always reflect the direction of revisions to the estimates by each of the hedge analysts.
EPS price, consensus and surprise
Earnings Whisper
The revisions of estimates before the disclosure of a company’s results provide clues about the business conditions for the period whose results are being disclosed. This perception is at the heart of our proprietary surprise forecasting model – the Zacks Earnings ESP (Expected Surprise Forecast).
Zacks Earnings ESP compares the most accurate estimate with 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 who revise their estimates shortly before a earnings release have the latest information, which may be potentially more accurate than what they and others who contributed to the consensus had previously predicted.
Thus, a positive or negative ESP reading of earnings theoretically indicates the likely deviation from actual earnings from the consensus estimate. However, the predictive power of the model is significant only for positive ESP readings.
A positive win ESP is a strong predictor of a win beat, particularly when combined with a Zacks # 1 (strong buy), 2 (buy) or 3 (wait) rating. Our research shows that stocks with this combination produce a positive surprise almost 70% of the time, and a solid Zacks rating really increases ESP’s predictive power of earnings.
Note that a negative reading of ESP earnings is not indicative of loss of earnings. Our research shows that it is difficult to predict a profit hit with any degree of confidence for stocks with ESP readings of negative earnings and / or Zacks Rating of 4 (Sell) or 5 (Strong Sell).
How did the numbers form for Micron?
For Micron, the most accurate estimate is the same as Zacks ‘consensus estimate, suggesting that there are no recent analysts’ views that differ from what was considered to derive the consensus estimate. This resulted in an ESP gain of 0%.
On the other hand, the stock currently carries a Zacks rating of # 1.
Therefore, this combination makes it difficult to predict conclusively that Micron will exceed the EPS consensus estimate.
Does the history of earnings surprises contain any clues?
Analysts often consider the extent to which a company has been able to match consensus estimates in the past when calculating its estimates for its future earnings. Therefore, it is worth taking a look at the history of surprises to assess their influence on the next issue.
For the last reported quarter, Micron was expected to record earnings of $ 1 per share when it actually produced earnings of $ 1.08, showing a + 8% surprise.
In the past four quarters, the company has exceeded consensus EPS estimates three times.
Result
A loss or hit in profits may not be the only basis for a stock to go up or down. Many stocks end up losing ground, despite the loss of profits, due to other factors that disappoint investors. Likewise, unforeseen catalysts help a series of stocks to win, despite the loss of profits.
That said, betting on stocks that should exceed profit expectations increases the chances of success. That’s why it’s worth checking a company’s Earnings ESP and Zacks Rank before its quarterly release. Be sure to use our ESP Earnings Filter to find out the best stocks to buy or sell before they are reported.
Micron does not seem like a convincing candidate to beat profits. However, investors should also be aware of other factors in order to bet on this stock or stay away from it before the disclosure of their results.
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