by David Aurelio.
The StarMine team has selected five North American companies, using Eikon Screener by Refinitiv, that we expect to miss 20Q1 earnings estimates, based on StarMine SmartEstimate® and Predicted Surprise data from Refinitiv.
Our North American selections for 2019 Q4 negative Predicted Surprises were 80% accurate, which can be viewed here. Historically (since 2011 Q4), our negative Predicted Surprise picks have demonstrated an accuracy rate of about 64.8%, giving investors an edge ahead of earnings announcements.
Our North American picks for negative Predicted Surprises in 2020 Q1 are — Navistar International Corp (NAV.N), Capri Holdings Ltd (CPRI.N), Ford Motor Co (F.N), Sabre Corp (SABR.O), and Cinemark Holdings Inc (CNK.N).
Exhibit 1: North American 20Q1 Negative Predictive Surprise Candidates
StarMine SmartEstimates® help you better predict future earnings and analyst revisions with estimates that place more weight on recent forecasts by top-rated analysts. SmartEstimates® are created in two steps. First, we exclude stale estimates, then weight the remaining estimates based on each analyst’s track record and the date of the estimate.
A StarMine Predictive Surprise compares the SmartEstimate® to the I/B/E/S consensus. When the earnings Predicted Surprise % is +/-2% or more, our research shows that you can anticipate the direction of earnings surprises with an accuracy rate of over 70%. Revenue Predicted Surprises are even more predictive, with a historical accuracy rate of 78%.
Exhibit 2: S&P 500 Y/Y Earnings Expectations History
The impacts of COVID-19 make 20Q1’s earnings season unique. Companies have been withdrawing guidance due to lack of visibility while analysts have been rapidly making downward revisions to earnings estimates. Exhibit 2 highlights the acceleration and extent to which analysts have cut earnings expectations. In this fast-moving environment, excluding stale estimates and higher weights to top rated analysts along with newer information provide SmartEstimates® a distinct advantage. Additionally, the Predicted Surprise % provides the ability to anticipate further downward revisions to estimates that may have already seen significant cuts.
Exhibit 3: Navistar International Corp. (NAV.N) Detailed EPS Estimates within Eikon
The I/B/E/S consensus estimate for Navistar’s 20Q1 EPS has fallen 127.7% to -$0.11 per share from $0.39 per share on March 10. Should investors expect further downside to expectations following a decline of this magnitude? The StarMine Predicted Surprise % of -288.2%, which compares the SmartEstimate® of -$0.42 per share to the I/B/E/S consensus of -$0.11 per share, strongly indicates that the outlook for Navistar’s 20Q1 earnings will continue to descend.
Exhibit 4: Navistar International Corp. (NAV.N) 20Q1 EPS Estimate History
Looking at the detailed broker estimates shown in Exhibit 5 highlights the SmartEstimates® value. A revision cluster took place on March 30, which means that estimates prior to that date have been excluded from the SmartEstimate®. In this example, the average of the X-Cluster estimates is $0.14 per share. Additionally, higher weight is given to higher rated analysts and more recent estimates. Finally, this example, provides a Bold Estimate of -$0.76 per share.
Exhibit 5: Navistar International Corp. (NAV.N) 20Q1 EPS Broker Estimates
A Bold Estimate on a stock is one that deviates significantly from the mean. By definition, 5-star analysts have deviated from the mean in the past and have also been significantly more accurate than other analysts. StarMine’s research shows that our analyst ratings are highly predictive of future analyst performance. That is, analysts who have scored highly in the past are likely to be high scoring in the future.
When a 5-star analyst sticks his or her neck out with a bold estimate, it often signals a major opportunity on the stock. Often, 5-star analysts are the first to revise their estimates. If other analysts follow, the mean will move toward the 5-star analyst’s estimate, and the stock price will often respond accordingly. In short, investors should pay attention to Bold Estimates by 5-star analysts.
Interested in learning how you can use the StarMine SmartEstimate® and Predicted Surprise® to avoid earnings misses and find earnings beats? Learn more here.
Each week the StarMine Earnings Surprise Forecast is published as part of the This Week in Earnings report. The forecast shows the S&P 500 companies with significant positive and negative Predicted Surprises expected to report over the next two weeks. Don’t be surprised when your holdings show up in This Week in Earnings, learn how to use Eikon from Refinitiv’s Screener app to see these companies ahead of publication here.
Interested in learning how you can use the StarMine SmartEstimate® and Predicted Surprise along with the Earnings Season Report App within Eikon from Refinitiv to follow earnings season? Find out more in this article “Are We Heading into an Earnings Recession?”
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