Why Medifast (MED) is Poised to Beat Earnings Estimates Again
If you're looking for a stock that has historically outperformed earnings estimates and is able to hold the trend in the next quarterly report, consider Medifast (MED). This company, which operates in the Zacks Food - Miscellaneous industry, has the potential for another profit jump.
In the last two reports, this weight loss company has had a strong streak of above average earnings estimates. The company beat estimates by an average of 26.37% over the past two quarters.
For the last quarter, Medifast was expected to post earnings of $ 1.84 per share, instead posting $ 1.96 per share, a surprise of 6.52%. For the previous quarter, the consensus estimate was $ 1.32 per share when it actually produced $ 1.93 per share, a surprise of 46.21%.
Price and EPS surprise
Given that earnings history, the most recent estimates for Medifast have increased. 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 latest information that could potentially be more accurate than they and others who contributed to the consensus previously predicted.
Medifast currently has an ESP gain of + 12.91%, which suggests that analysts have been optimistic about its near-term earnings potential. When you combine that positive ESP result with the stock's Zacks Rank 2 (Buy), it shows that another blow may be ahead.
If the ESP is negative for earnings, investors should be aware that this will reduce the predictive power of the metric. However, a negative value does not indicate a stock's loss of earnings.
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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