Can Sherwin-Williams (SHW) Keep the Earnings Surprise Streak Alive?
If you're looking for a stock that has historically outperformed earnings estimates and is able to hold the trend in its next quarterly report, consider Sherwin-Williams (SHW). This company, which operates in the Zacks Paints and Related Products industry, has the potential for another leap in profits.
This paint and coatings maker has seen a nice streak of above average earnings estimates, especially on the two previous reports. The average surprise over the last two quarters was 13.26%.
For the final quarter, Sherwin-Williams was expected to post earnings of $ 5.69 per share, up from $ 7.10 per share, a surprise of 24.78%. For the previous quarter, the consensus estimate was $ 4.01 per share when it actually produced $ 4.08 per share, a surprise of 1.75%.
Price and EPS surprise
Given that earnings history, recent estimates for Sherwin-Williams have risen. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) is positive for the company, which is a good sign of a jump in profits, especially when you combine that metric with the beautiful Zacks Rank.
Our research shows that stocks with the combination of a positive ESP result and a Zacks rank of 3 (hold) or better cause a positive surprise nearly 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate can be up to seven.
The Zacks Earnings ESP compares the most accurate estimate to the Zacks Consensus estimate for the quarter. The most accurate guess is a version of the Zacks consensus, the definition of which is in terms of changes. The idea is that analysts who revise their estimates just before earnings are released will have the most up-to-date information that could potentially be more accurate than they and others who contributed to the consensus previously predicted.
Sherwin-Williams currently has an ESP profit of + 1.04%, suggesting that analysts have been optimistic about the company's earnings outlook lately. That positive ESP result combined with the stock's Zacks rank 2 (Buy) indicates that another blow may be imminent. We expect the company's next earnings report to be released on October 27, 2020.
However, investors should note that a negative ESP value for earnings is not an indication of a loss of profit, but a negative value will reduce the predictive power of this metric.
Many companies end up outperforming the consensus-based EPS estimate, but this may not be the only basis for their stocks to rise. On the flip side, some stocks can hold their own even if they miss the consensus estimate.
For this reason, it is very important to review a company's ESP result before its quarterly release to increase the chances of success. Make sure to use our ESP Profit Filter to find the best stocks to buy or sell before they are reported.
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