What you need to know before the second quarter premiere

The market is expecting Sensata (ST) to post a year-over-year earnings decline on lower revenue when it reports results for the quarter ended June 2024. This widely known consensus forecast is important when assessing the company’s earnings picture, but a strong factor that could impact its stock price in the near term is how well actual results compare to those estimates.

The stock could rise if these key numbers beat expectations in the upcoming earnings report, due July 29. 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 maker of electrical measurement, protection, control and energy management equipment is expected to report quarterly earnings of $0.93 per share in its upcoming report, representing a year-over-year change of -4.1%.

Revenue is expected to be $1.04 billion, down 2.1% from the year-ago quarter.

Estimate revision trend

The consensus EPS estimate for the quarter has been revised 0.64% down 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 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ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS.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 numbers for Sensata?

In the case of Sensata, 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 Sensata will likely beat consensus earnings per share estimates.

Can history give any clues about financial performance?

Analysts often consider how well a company has been able to match consensus estimates in the past when calculating their future earnings estimates, so it’s worth looking at the company’s surprise history to assess its impact on the upcoming numbers.

For the last reported quarter, it was expected that Sensata would post earnings of $0.86 per share when it actually produced $0.89, representing a surprise of +3.49%.

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.

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

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

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