Why the earnings surprise streak could continue for Convergys (CVG)

Looking for a stock that has consistently beaten earnings estimates and could be well-positioned to continue its streak into its next quarterly report? Convergys (CVG), which belongs to the Zacks Outsourcing industry, could be a great candidate to consider.

The client management firm has a well-established reputation for beating earnings estimates, especially looking at the past two reports. The firm boasts an average earnings surprise of 3.47% over the past two quarters.

For the last quarter, Convergys was expected to post earnings of $0.40 per share but instead the company reported earnings of $0.41 per share, delivering a surprise of 2.50%. For the previous quarter, the consensus estimate was $0.45 per share but in fact the company produced earnings of $0.47 per share, delivering a surprise of 4.44%.

Price and EPS are surprising

Given this earnings history, recent estimates for Convergys have been rising. In fact, the company’s Zacks Earnings ESP (Expected Surprise Prediction) is positive, which is a great sign of an earnings beat, especially when paired with its strong Zacks Rank.

Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better deliver a positive surprise almost 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat consensus estimates could be as many as seven.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a revision of the Zacks Consensus definition that is related to revision. 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 contributors to the consensus had previously predicted.

Convergys currently has an Earnings ESP of +3.50%, suggesting that analysts have become bullish on its near-term earnings potential. When we combine this positive Earnings ESP with the stock’s Zacks Rank #3 (Hold), it shows that another beat is likely just around the corner. The company’s next earnings report is expected to be released on August 14, 2018.

When the Earnings ESP is negative, investors should remember that this will reduce the predictive power of the indicator. However, a negative value is not an indicator of a lack of earnings for the stock.

Many companies end up beating consensus EPS estimates, although that’s not the only reason their stocks appreciate. In addition, some stocks can remain stable even if they end up missing consensus estimates.

For this reason, it is very important to check a company’s Earnings ESP before its quarterly release to increase your chances of success. Make sure you use our Earnings ESP Filter to discover the best stocks to buy or sell before they are released.

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