Diamondback Energy (FANG) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.
The upward trend in estimate revisions for this energy exploration and production 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. 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.
Consensus earnings estimates for the next quarter and full year have moved considerably higher for Diamondback Energy, as there has been strong agreement among the covering analysts in raising estimates.
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 $4.71 per share, which is a change of +52.9% from the year-ago reported number.
Over the last 30 days, four estimates have moved higher for Diamondback while one has gone lower. As a result, the Zacks Consensus Estimate has increased 17.61%.
Current-Year Estimate Revisions
For the full year, the earnings estimate of $21.07 per share represents a change of +57.6% from the year-ago number.
The revisions trend for the current year also appears quite promising for Diamondback, with five 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 5.64%.
Favorable Zacks Rank
Thanks to promising estimate revisions, Diamondback currently carries a Zacks Rank #2 (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 Diamondback because of its solid estimate revisions, as evident from the stock's 6% 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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Diamondback Energy, Inc. (FANG): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).