SM Energy (SM) could be a solid addition to your portfolio given a notable revision in the company's earnings estimates. While the stock has been gaining lately, the trend might continue since its earnings outlook is still improving.
Analysts' growing optimism on the earnings prospects of this independent oil and gas company is driving estimates higher, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. This insight is at the core of our stock rating tool -- the Zacks Rank.
The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.
For SM Energy, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.
The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:
12 Month EPS
Current-Quarter Estimate Revisions
The company is expected to earn $1.83 per share for the current quarter, which represents a year-over-year change of +22.0%.
Over the last 30 days, the Zacks Consensus Estimate for SM Energy has increased 8.67% because two estimates have moved higher while two have gone lower.
Current-Year Estimate Revisions
For the full year, the earnings estimate of $6.86 per share represents a change of +26.6% from the year-ago number.
The revisions trend for the current year also appears quite promising for SM Energy, with four estimates moving higher over the past month compared to one negative revision. The consensus estimate has also received a boost over this time frame, increasing 8.34%.
Favorable Zacks Rank
Thanks to promising estimate revisions, SM Energy currently carries a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.
Bottom Line
Investors have been betting on SM Energy because of its solid estimate revisions, as evident from the stock's 6.3% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.
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SM Energy Company (SM): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).