Have you been searching for a stock that might be well-positioned to maintain its earnings-beat streak in its upcoming report? It is worth considering Paychex (PAYX), which belongs to the Zacks Internet - Software industry.
This payroll processor and human-resources services provider has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average surprise for the last two quarters was 1.70%.
For the last reported quarter, Paychex came out with earnings of $1.71 per share versus the Zacks Consensus Estimate of $1.68 per share, representing a surprise of 1.79%. For the previous quarter, the company was expected to post earnings of $1.24 per share and it actually produced earnings of $1.26 per share, delivering a surprise of 1.61%.
Price and EPS Surprise
With this earnings history in mind, recent estimates have been moving higher for Paychex. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the company is positive, which is a great sign of an earnings beat, especially when you combine this metric with its nice Zacks Rank.
Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce 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 could be as high as seven.
The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.
Paychex currently has an Earnings ESP of +0.22%, which suggests that analysts have recently become bullish on the company's earnings prospects. This positive Earnings ESP when combined with the stock's Zacks Rank #3 (Hold) indicates that another beat is possibly around the corner.
With the Earnings ESP metric, it's important to note that a negative value reduces its predictive power; however, a negative Earnings ESP does not indicate an earnings miss.
Many companies end up beating the consensus EPS estimate, though this is not the only reason why their shares gain. Additionally, some stocks may remain stable even if they end up missing the consensus estimate.
Because of this, it's really important to check a company's Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
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Paychex, Inc. (PAYX): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).