What to know before the Q2 release

Unity Bancorp (UNTY) is expected to report year-over-year earnings growth on higher revenue when it reports results for the quarter ended June 2022. This widely-known consensus forecast gives a good idea of ​​the company’s earnings picture, but how the actual results stack up to those estimates is a strong factor that could impact the stock’s price in the near term.

An earnings report could help a stock rise if those key numbers come out better than expected. On the other hand, if they fall short of expectations, the stock could fall.

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

Zacks Consensus Estimate

The bank holding company is expected to report quarterly earnings of $0.89 per share in its upcoming report, which would represent a year-over-year change of +11.3%.

Revenue is expected to be $23.79 million, up 11.5% from the same quarter last year.

Estimate revision trend

The consensus EPS estimate for the quarter has been revised 3.41% up over the past 30 days to current levels. This is essentially a reflection of how the analysts covering the aggregate have reassessed 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.

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ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS estimate. The idea is that analysts revising 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 forecast.

Thus, a positive or negative 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 are Unity Bancorp’s numbers shaping up?

In the case of Unity Bancorp, 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 carries a Zacks Rank #1.

Therefore, it is difficult to clearly predict that Unity Bancorp will beat consensus earnings per share estimates.

Does the history of surprising results have any clue?

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

For the last reported quarter, it was expected that Unity Bancorp would post earnings of $0.81 per share when it actually produced earnings of $0.85, delivering a surprise of +4.94%.

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 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.

Unity 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.

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

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