What you need to know ahead of the Q2 release

Wall Street expects year-over-year earnings growth on higher revenues when Community Trust Bancorp (CTBI) reports earnings for the quarter ended June 2019. While this well-known consensus outlook is important in assessing the company’s earnings picture, a significant factor that could have an impact on a company’s short-term share price is to compare actual results with these estimates.

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 the sustainability of the immediate price change and future earnings expectations will depend primarily on management’s discussion of business conditions during the earnings conference call, it is worth assessing the likelihood of a positive earnings surprise.

Zacks Consensus Estimate

The bank holding company of Community Trust Bank is expected to post quarterly earnings per share of $0.86 per share in its upcoming report, representing a year-over-year change of +4.9%.

Revenue is expected to be $48.98 million, up 0.2% from the prior-year quarter.

Estimate the trend of change

The consensus EPS estimate for the quarter remains unchanged over the last 30 days. 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 aggregate change does not necessarily reflect the direction of each lead analyst’s estimate revisions.

Price, consensus and EPS surprise

Whispers 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.

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 deliver a positive surprise almost 70% of the time, and a solid Zacks Rank actually boosts 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 have the numbers changed for Community Trust Bancorp?

For Community Trust Bancorp, the Most Accurate Estimate is the same as the Zacks Consensus Estimate, which suggests there is no recent analyst view that differs from what was taken into account in arriving at the Consensus Estimate. This resulted in an Earnings ESP of 0%.

On the other hand, the stock currently sports a Zacks Rank of #4.

As a result, it’s difficult to confidently predict that Community Trust Bancorp will beat consensus earnings per share estimates.

Does the history of surprising results hold any clue?

When calculating a company’s future earnings estimates, analysts often wonder how well it was able to match previous estimates. So it’s worth taking a look at the company’s surprise history to assess its impact on the upcoming number.

For the last reported quarter, Community Trust Bancorp was expected to post earnings of $0.81 per share when it actually produced earnings of $0.84, delivering a surprise of +3.70%.

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

Bottom Line

Beating or missing earnings may not be the only reason a stock goes up or down. Many stocks lose ground despite beating earnings because of 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.

Community Trust Bancorp doesn’t seem like a compelling candidate for an earnings beat, but there are other factors investors should look at if they want to bet against or stay away from this stock ahead of its earnings release.

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