Get to know the trend ahead of Q2 release

Celldex Therapeutics (CLDX) is expected to report year-over-year earnings growth on the back of higher revenues in its June 2020 quarter. This widely-known consensus forecast provides a good picture of the company’s earnings, but how the actual results compare to these estimates is an important factor that could impact the stock’s near-term price.

An earnings report could help the stock climb higher if those key numbers beat expectations. On the other hand, if they miss, the stock could fall.

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

Zacks Consensus Estimate

The biopharmaceutical company is expected to report quarterly loss of $0.77 per share in its upcoming report, representing a year-over-year change of +8.3%.

Revenue is expected to be $0.90 million, up 25% from the same quarter last year.

Estimate the trend of change

The consensus EPS estimate for the quarter remained unchanged over the past 30 days. This is essentially a reflection of how the analysts covering the aggregate have reassessed their initial estimates during that period.

Investors should note that the direction of each analyst’s estimate revisions will not always be reflected in the aggregate change.

Price, Consensus and EPS Surprise

Whisper about earnings

Estimate revisions prior to a company’s earnings release provide an indication of business conditions during the earnings release period. Our proprietary surprise forecast model – Zacks Earnings ESP (Expected Surprise Prediction) – has this insight at its core.

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 combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). Our research shows that stocks with this combination deliver a positive surprise almost 70% of the time, and a solid Zacks Rank actually boosts the predictive power of Earnings ESP.

Please note that a negative earnings ESP reading does not mean a loss of earnings. 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 the numbers changed at Celldex?

For Celldex, the Most Accurate Estimate is the same as the Zacks Consensus Estimate, which suggests there are no recent analyst views that differ from those taken into account in arriving at the Consensus Estimate. This resulted in an Earnings ESP of 0%.

On the other hand, the stock currently has a Zacks Rank of #2.

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

Does the history of surprising results have any clue?

Analysts often consider how well a company has been able to match consensus estimates in the past when calculating their future earnings estimates, so it’s worth looking at the surprise history to assess its impact on the upcoming numbers.

For the last reported quarter, Celldex was expected to post a loss of $0.70 per share when it actually produced a loss of $0.73, resulting in a surprise of -4.29%.

The company has beaten consensus EPS estimates twice 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 beat earnings expectations increases your chances of success. That’s why it’s worth checking a company’s earnings ranking and Zacks Rank ahead of their quarterly release. Use our Earnings ESP filter to find the best stocks to buy or sell before they’re reported.

Celldex doesn’t seem like a compelling candidate for better financial results. However, investors should pay attention to other factors when betting on these stocks or staying away from them ahead of the earnings release.

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