Why Lululemon (LULU) Could Beat Earnings Estimates Again

Are you looking for a stock that has consistently beaten earnings estimates and could be well-positioned to continue that streak in the next quarterly report? Lululemon (LULU), which belongs to the Zacks Textiles & Apparel industry, could be a great stock to consider.

This sportswear maker has had a nice streak of beating earnings estimates, especially considering the two previous reports. The average surprise for the last two quarters was 8.52%.

Lululemon was expected to report earnings of $5.01 per share for the most recent quarter, but instead reported earnings of $5.29 per share, representing a surprise of 5.59%. The consensus estimate for the prior quarter was $2.27 per share when it actually delivered $2.53 per share, representing a surprise of 11.45%.

Price and EPS surprise

With this earnings history in mind, Lululemon’s latest estimates are getting higher. In fact, the company’s Zacks Earnings ESP (expected surprise) is positive, which is a great sign of earnings growth, especially when you combine this metric with a 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 in this combination, the number of stocks that beat the consensus could be as high as seven.

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The Most Accurate Estimate is the Zacks Consensus version, which is defined in terms of change. The idea is that analysts reviewing their estimates just before an earnings release have the latest information that could potentially be more accurate than what they and other consensus participants had previously predicted.

Lululemon currently has an earnings ESP of +0.55%, which suggests analysts have recently become optimistic about the company’s earnings prospects. This positive Earnings ESP combined with the stock’s Zacks Rank #3 (Hold) indicates that another rally is likely just around the corner. We expect the company’s next earnings report to be published on June 5, 2024.

However, investors should remember that a negative earnings ESP reading does not mean a loss of earnings, but a negative value reduces the predictive power of the metric.

Many companies end up beating consensus EPS estimates, but that may not be the only basis for their stock’s rise. On the other hand, some stocks may hold their ground even if they fall short of the consensus price.

For this reason, it is very important to check a company’s earnings ESP before its quarterly release to increase the chances of success. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report

Lululemon Athletica Inc. (LULU): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research