Stanley Black & Decker (SWK) fourth-quarter earnings are expected to decline

The market expects Stanley Black & Decker (SWK) to report year-over-year results for the quarter ended December 2022, with lower revenues. This well-known consensus outlook is important when assessing a company’s earnings picture, but an important factor that can impact a company’s near-term share price is how actual results compare to estimates.

Shares could move higher if these key numbers meet expectations in the upcoming earnings report, due on February 2. On the other hand, if these key numbers are not met, the stock could fall.

While the durability of the immediate price change and future earnings expectations will largely depend on management’s discussion of business conditions on the earnings call, it is worth limiting the likelihood of a positive EPS surprise.

Zacks Consensus Estimate

The tools company is expected to report quarterly loss of $0.33 per share in its upcoming report, representing a year-over-year change of -115.4%.

Revenue is expected to be $3.94 billion, down 3.2% from the year-ago quarter.

Estimate the trend of change

The consensus EPS estimate for this quarter has been revised 13.92% 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 direction of each analyst’s estimate revisions will not always be reflected in the aggregate change.

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, which 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.

It’s important to remember that a negative Earnings ESP reading does not indicate an earnings miss. Our research shows that it’s difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank 4 (Sell) or 5 (Strong Sell).

How have the numbers changed for Stanley Black & Decker?

For Stanley Black & Decker, the Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting analysts have recently become bearish on the company’s earnings prospects. This resulted in an Earnings ESP of -69.70%.

On the other hand, the stock currently has a Zacks Rank of 5.

So this combination makes it difficult to confidently predict that Stanley Black & Decker will beat the consensus EPS estimate.

Does the history of surprising results have any clue?

When calculating a company’s future earnings estimates, analysts often consider how well it matched previous consensus estimates. So it’s worth looking at a surprising story to assess its impact on the upcoming numbers.

For the last reported quarter, Stanley Black & Decker was expected to post earnings of $0.73 per share when it actually produced earnings of $0.76, delivering a surprise of +4.11%.

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

Bottom line

Improving or lacking earnings may not be the only basis for a stock’s value rising or falling. Many stocks lose value despite good earnings because of other factors that disappoint investors. Similarly, 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.

Stanley Black & Decker doesn’t seem like a compelling earnings beat candidate. 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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