PacWest Bancorp (PACW)’s first-quarter earnings are expected to decline.

PacWest Bancorp (PACW) is expected to report a year-over-year earnings decline on lower revenue in its quarter ended March 2019. This widely known consensus outlook 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.

The stock could rise if these key numbers beat expectations in the upcoming earnings report. On the other hand, if they don’t, 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 holding company of Pacific Western Bank is expected to report quarterly earnings of $0.91 per share in its upcoming report, which would represent a year-over-year change of -2.1%.

Revenue is expected to be $291.86 million, down 1.1% from the year-ago quarter.

Estimate revision trend

The consensus EPS estimate for the quarter has been revised upwards by 0.15% over the last 30 days to the current level. This is broadly a reflection of how the covering analysts collectively have 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.

Price, Consensus and EPS Surprise

Whisper about earnings

Estimate revisions ahead of a company’s earnings release provide a clue as to business conditions in the period in which the earnings are due to be released. Our proprietary surprise prediction model, the Zacks Earnings ESP (Expected Surprise Prediction), is based on this knowledge.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS. The idea is that the analysts revising their estimates just before an earnings release have the latest information, which could potentially be more accurate than what they and other contributors to the consensus had previously predicted.

So a positive or negative Earnings ESP reading theoretically indicates a likely deviation of actual earnings from consensus estimates. However, the model’s predictive power 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 produce a positive surprise almost 70% of the time, and a solid Zacks Rank actually enhances the predictive power of 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 do the numbers stack up for PacWest?

In the case of PacWest, the Most Accurate Estimate is the same as the Zacks Consensus Estimate, suggesting there is no recent analyst view that differs from those considered to form the basis of the consensus. This has 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 PacWest 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 company’s surprise history to assess its impact on the upcoming numbers.

In the last reported quarter, it was expected that PacWest would post earnings of $0.92 per share when it actually produced earnings of $0.93, representing a surprise of +1.09%.

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

Bottom Line

Beating or missing earnings may not be the only basis for a stock rising or falling. Many stocks lose ground despite beating gains due to other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite missing earnings.

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.

PacWest 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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