Can the stock go higher?
The market expects Western Alliance (WAL) to produce lower year-on-year earnings amid higher revenues when it reports results for the quarter ended September 2020. This widely known consensus outlook is important for assessing the earnings picture of the company. company, but a powerful factor that could affect its stock price in the short term is how actual results compare to these estimates.
The stock could rise if these key numbers exceed expectations in the next earnings report. On the other hand, if they are missing, the stock could go down.
While management’s discussion of business conditions on the earnings call will primarily determine the sustainability of the immediate price change and future earnings expectations, it is worth having a handicapped view of the probabilities of a positive surprise for EPS.
Zacks consensus estimate
This banking holding is expected to post quarterly earnings of $ 0.82 per share in its next report, which represents a year-over-year change of -33.9%.
Revenue is expected to be $ 308.18 million, up 7.8% from the prior-year quarter.
Estimated Trend Revisions
The consensus estimate on EPS for the quarter has been revised up by 2.15% over the past 30 days to the current level. This is essentially a reflection of how hedge analysts collectively re-evaluated their initial estimates over this period.
Investors should keep in mind that the direction of each of the hedging analysts’ estimates revisions may not always be reflected in the aggregate change.
Price, consensus and EPS surprise
Revisions to estimates prior to a company’s earnings release offer clues to the business conditions for the period of which results are about to come out. This insight is at the heart of our proprietary surprise prediction model: Zacks Earnings ESP (Expected Surprise Prediction).
Zacks ‘Earnings ESP compares the most accurate estimate to 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 review their estimates just before the earnings release have the most recent information, which could potentially be more accurate than they and others who contributed to the consensus had previously predicted.
Therefore, a positive or negative ESP reading of earnings theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only meaningful for positive ESP readings.
A positive earning ESP is a strong predictor of an earnings beat, particularly when combined with Zacks Rank # 1 (Strong Buy), 2 (Buy), or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of earnings ESP.
Please note that a negative Earnings ESP reading is not indicative of a loss of earnings. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative earnings ESP readings and / or Zacks Rank of 4 (Sell) or 5 (Strong Sell).
How were the numbers for the Western Alliance formed?
For Western Alliance, the most accurate estimate is higher than Zacks’ consensus estimate, which suggests analysts have recently turned bullish on the company’s earnings outlook. This resulted in an ESP on earnings of + 23.67%.
On the other hand, the title currently has a Zacks rank of 3.
Hence, this combination indicates that the Western Alliance will most likely beat the EPS consensus estimate.
Does the Earnings Surprise History contain any clues?
When calculating estimates for a company’s future earnings, analysts often consider how far it has been able to match past consensus estimates. So, it’s worth taking a look at the surprise story to gauge its influence on the upcoming issue.
For the last quarter reported, Western Alliance was expected to post earnings of $ 0.69 per share when it actually produced earnings of $ 0.93, delivering a + 34.78% surprise.
In the past four quarters, the company has beaten EPS consensus estimates four times.
A beat or lost profit may not be the only basis for a stock moving up or down. Many stocks end up losing ground despite falling earnings due to other factors that disappoint investors. Likewise, unexpected catalysts help a certain number of stocks to gain despite a loss of earnings.
That said, betting on stocks that should exceed earnings expectations increases the odds of success. This is 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 the best stocks to buy or sell before they are reported.
Western Alliance seems like an irresistible candidate for earnings. However, investors should also pay attention to other factors to bet on this stock or steer clear of it before earnings are released.
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