Carpenter Technology (CRS) Earnings Expected to Rise: Should You Buy It?

Carpenter Technology (CRS) is expected to report year-over-year earnings growth on higher revenue when it reports results for the quarter ended March 2019. 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 the durability of the immediate price change and future earnings expectations will depend largely on management’s discussion of business conditions during the earnings conference call, it is worth assessing the likelihood of an upside earnings per share surprise.

Zacks Consensus Estimate

The stainless steel and specialty alloy producer is expected to report quarterly earnings of $0.83 per share in its upcoming report, which would represent a year-over-year change of +38.3%.

Revenue is expected to be $609.73 million, up 6.6% from the same quarter last year.

Estimate revision trend

The consensus EPS estimate for the quarter has been revised up 2.1% over the past 30 days to the current level. This is essentially a reflection of how the analysts covering the aggregate have reassessed their initial estimates during that time.

Investors should note that the total change may not necessarily reflect the direction of each individual analyst’s estimate revisions.

Price, Consensus and EPS Surprise

Whispers about earnings

Estimate revisions ahead of a company’s earnings release provide an indication of business conditions in the period in which the earnings are released. This knowledge is the basis for our proprietary Zacks Earnings ESP (Expected Surprise Prediction) surprise prediction model.

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ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS.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 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).

What do the numbers look like for Carpenter?

In the case of Carpenter, the Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting that analysts have recently become bearish on the company’s earnings prospects. This has led to an Earnings ESP of -0.40%.

On the other hand, the company’s stock currently has a Zacks Rank #2.

The combination of these factors makes it difficult to clearly predict that Carpenter will beat consensus earnings per share estimates.

Are the financial results surprising? Does history matter?

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, it was expected that Carpenter would post earnings of $0.66 per share when the actual result was $0.76, representing a surprise of +15.15%.

The company has topped consensus earnings per share estimates three times over the last four quarters.

Summary

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 the odds of success. That’s why it’s worth checking a company’s Earnings ESP and Zacks Rank ahead of its quarterly earnings release. Be sure to use our Earnings ESP Filter to discover the best stocks to buy or sell before they release.

Carpenter doesn’t seem like a compelling candidate for an earnings beat. However, investors should look at other factors when betting on this stock or staying away from it ahead of its earnings release.

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