Can stocks go higher?

Wall Street is expecting a year-over-year decline in earnings on higher revenue when State Street Corporation (STT) reports results for the quarter ended June 2024. While this widely known consensus forecast is important for assessing the company’s earnings situation, a strong factor that could affect its stock price in the near term is how well actual results stack up against those estimates.

The earnings report, due on July 16, 2024, 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 company is expected to report quarterly earnings of $2.01 per share in its upcoming report, which would represent a year-over-year change of -7.4%.

Revenue is expected to be $3.15 billion, up 1.2% from the same quarter last year.

Estimate revision trend

The consensus EPS estimate for the quarter has been revised up 0.88% 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 total change may not necessarily reflect the direction of each analyst’s estimate revisions.

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ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS.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

In the case of State Street, 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 +0.15%.

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

So this combination indicates that State Street will likely beat consensus earnings per share estimates.

Can history give any clues about financial performance?

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, State Street was expected to post earnings of $1.48 per share when it actually produced earnings of $1.69, delivering a surprise of +14.19%.

The company has topped consensus earnings per share estimates four 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.

State Street seems like a compelling candidate for earnings outperformance. But investors should look at other factors when betting on or staying away from this stock ahead of its earnings release.

Expected results of an industry player

Among the stocks in the Zacks Banks – Major Regional industry, JPMorgan Chase & Co. (JPM) is soon to post earnings of $4.19 per share for the quarter ending June 2024. This estimate indicates a year-over-year change of -4.1%. Revenue for the quarter is expected to be $45.03 billion, up 9% from the year-ago quarter.

The consensus EPS estimate for JPMorgan Chase & Co. has been revised 0.8% higher over the past 30 days to current levels. However, the higher Most Accurate Estimate results in an Earnings ESP of 0.57%.

This Earnings ESP, when combined with a Zacks Rank #3 (Hold), suggests that JPMorgan Chase & Co. is likely to beat consensus EPS estimates. The company has beaten consensus EPS estimates in each of the trailing four quarters.

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

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