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.
The upward trend in estimate revisions for this independent oil and gas company reflects growing optimism of analysts on its earnings prospects, 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. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.
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
For the current quarter, the company is expected to earn $1.85 per share, which is a change of +39.1% from the year-ago reported number.
The Zacks Consensus Estimate for SM Energy has increased 16.19% over the last 30 days, as two estimates have gone higher while three have gone lower.
Current-Year Estimate Revisions
For the full year, the company is expected to earn $7.85 per share, representing a year-over-year change of +44.8%.
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 two negative revisions. The consensus estimate has also received a boost over this time frame, increasing 5.66%.
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
SM Energy shares have added 6.8% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.
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SM Energy Company (SM): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).