What to know before next week’s publication

Wall Street expects year-over-year earnings growth on higher revenues when Matador Resources (MTDR) reports earnings for the quarter ended December 2022. While this widely known consensus outlook is important in assessing the company’s earnings picture, it is a significant factor that could impact the short-term share price is to compare actual results with these estimates.

Shares could move higher if these key numbers meet expectations in the upcoming earnings report, due on February 21. On the other hand, if these key numbers are not met, the stock could fall.

While management’s discussion of business conditions during the earnings call will largely determine the durability of the immediate price change and future earnings expectations, it is worth having partial insight into the likelihood of a positive EPS surprise.

Zacks Consensus Estimate

The independent oil and gas company is expected to post quarterly earnings per share of $1.95 in its upcoming report, representing a year-over-year change of +54.8%.

Revenue is expected to be $651.11 million, up 15% from the same quarter last year.

Estimate the trend of change

The consensus EPS estimate for this quarter has been revised 6.05% down to the current level over the last 30 days. This broadly reflects how analysts covering the data have collectively re-evaluated their initial estimates during this period.

Investors should note that the aggregate change does not necessarily reflect the direction of estimate revisions by each major analyst.

Whisper about earnings

Revisions to estimates prior to a company’s earnings release provide an indication of business conditions in the period in which the earnings are expected to be released. Our proprietary surprise prediction model, the Zacks Earnings ESP, is based on this insight.

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The Most Accurate Estimate is a newer revision of the Zacks Consensus EPS estimate. 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.

Thus, a positive or negative ESP reading theoretically indicates the likely deviation of actual earnings from consensus estimates. However, the predictive power of the model is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when paired with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks in this combination deliver a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of its earnings ESP.

Please note that a negative ESP reading does not mean a loss of profits. Our research shows that it is difficult to predict earnings growth with any degree of confidence for stocks with negative ESP readings and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How have Matador’s numbers changed?

For Matador, the Most Accurate Estimate is in line with the Zacks Consensus Estimate, which suggests that there are no recent analyst views that differ from what is considered the basis for the consensus estimate. This resulted in an earnings ESP of 0%.

On the other hand, the stock currently has a Zacks Rank of #3.

So this combination makes it difficult to confidently predict that Matador will outperform the consensus EPS estimate.

Does the history of surprising results have any clue?

When calculating future earnings estimates, analysts often consider how well a company has been able to match consensus estimates in the past. So it’s worth taking a look at the history of surprises to assess its impact on the upcoming issue.

For the last reported quarter, it was expected that Matador would post earnings of $2.47 per share when it actually produced earnings of $2.68, representing a surprise of +8.50%.

The company has beaten consensus EPS estimates four times over the last four quarters.

Bottom line

Improving or lacking earnings may not be the sole basis for a stock’s value rising or falling. Many stocks lose value despite good earnings because of other factors that disappoint investors. Likewise, unforeseen catalysts help many stocks gain despite losing profits.

That said, betting on stocks that are expected to exceed earnings expectations increases your chances of success. Therefore, it is worth checking the company’s Earnings Rank and Zacks Rank before their quarterly release. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

Matador doesn’t seem like a compelling candidate to beat earnings. However, investors should also pay attention to other factors if they want to bet on or stay away from these stocks ahead of an earnings release.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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