What you need to know before the second quarter premiere

Ardagh Group (ARD) is expected to report a year-over-year decline in earnings on lower revenue when it reports results for the quarter ended June 2019. This widely-known consensus forecast gives a good idea of ​​the company’s earnings picture, but how the actual results compare to these estimates is a strong factor that could impact the stock price in the near term.

The earnings report, due July 25, 2019, could help the 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 operating conditions during the earnings conference call will have the greatest impact on the durability of the immediate price change and future earnings expectations, it is worth having insight into the likelihood of an upside earnings per share surprise.

Zacks Consensus Estimate

The packaging company is expected to report quarterly earnings of $0.49 per share in its upcoming report, which would represent a year-over-year change of -3.9%.

Revenue is expected to be $2.31 billion, down 1.4% from the same quarter last year.

Estimate revision trend

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 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 a guide to business conditions in the period in which the earnings are released. Our proprietary surprise prediction model, the Zacks Earnings ESP (Expected Surprise Prediction), has this insight at its core.

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ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS.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 are the Ardagh Group numbers?

In the case of Ardagh Group, the Most Accurate Estimate is higher than the Zacks Consensus Estimate, suggesting that analysts have recently become optimistic about the company’s earnings prospects. This results in an Earnings ESP of +5.16%.

On the other hand, the company’s stock currently has a Zacks Rank #3.

So this combination indicates that Ardagh Group will most likely 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 Ardagh Group would post earnings of $0.31 per share when the actual result was $0.35, delivering a surprise of +12.90%.

The company has topped consensus earnings per share estimates twice 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.

Ardagh Group looks like a compelling candidate for an earnings beat. However, investors should look at other factors when placing bets on this stock or staying away from it ahead of its earnings release.

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