Get to know the trend ahead of Q2 release

Wall Street expects year-over-year earnings growth on higher revenues when EyePoint Pharmaceuticals (EYPT) reports earnings for the quarter ended June 2021. While this widely known consensus outlook is important in assessing the company’s earnings picture, it is a significant factor that could impact the short-term share price is to compare actual results with these estimates.

The earnings report could help the stock climb higher if these key numbers are better than expected. On the other hand, if they miss, the stock could fall.

While management’s discussion of business conditions during the earnings call will largely determine the durability of the immediate price change and future earnings expectations, it is worth having partial insight into the likelihood of a positive EPS surprise.

Zacks Consensus Estimate

In its upcoming report, the drug delivery technology company is expected to report quarterly loss of $0.45 per share, representing a year-over-year change of +55%.

Revenue is expected to be $8.8 million, up 113.6% from the same quarter last year.

Estimate the trend of change

The consensus EPS estimate for the quarter has not changed over the last 30 days. This broadly reflects how analysts covering the data have collectively re-evaluated their initial estimates during this period.

Investors should note that the direction of each analyst’s estimate revisions will not always be reflected in the aggregate change.

Whisper about earnings

Revisions to estimates prior to a company’s earnings release provide an indication of business conditions in the period in which the earnings are expected to be released. Our proprietary surprise prediction model, the Zacks Earnings ESP, is based on this insight.

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The Most Accurate Estimate is a newer revision of the Zacks Consensus EPS estimate. The idea is that analysts reviewing their estimates just before an earnings release have the latest information, which could potentially be more accurate than what they and other consensus participants had previously predicted.

Thus, a positive or negative ESP reading theoretically indicates the likely deviation of actual earnings from consensus estimates. However, the predictive power of the model is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when paired with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks in this combination deliver a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of its Earnings ESP.

Please note that a negative ESP reading does not mean a loss of profits. Our research shows that it is difficult to predict earnings growth with any degree of confidence for stocks with negative ESP readings and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How have the numbers changed for EyePoint Pharmaceuticals?

For EyePoint Pharmaceuticals, the Most Accurate Estimate is in line with the Zacks Consensus Estimate, which suggests that there are no recent analyst opinions that differ from those used as the basis for the consensus estimate. This resulted in an earnings ESP of 0%.

On the other hand, the stock currently has a Zacks Rank of #3.

So this combination makes it difficult to confidently predict that EyePoint Pharmaceuticals will beat the consensus EPS estimate.

Does the history of surprising results have any clue?

When calculating future earnings estimates, analysts often consider how well a company has been able to match consensus estimates in the past. So it’s worth taking a look at the surprise history to gauge its impact on the upcoming issue.

During the last quarter, it was expected that EyePoint Pharmaceuticals would post a loss of $0.53 per share when it actually produced a loss of $0.50, delivering a surprise of +5.66%.

The company has beaten consensus EPS estimates twice over the last four quarters.

Bottom line

Improving or lacking earnings may not be the only basis for a stock’s value rising or falling. Many stocks lose value despite good earnings because of other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite losing profits.

That said, betting on stocks that are expected to exceed earnings expectations increases your chances of success. Therefore, it is worth checking the company’s Earnings Rank and Zacks Rank before their quarterly release. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

EyePoint Pharmaceuticals doesn’t seem like a compelling earnings beat candidate. However, investors should also pay attention to other factors if they want to bet on or stay away from these stocks ahead of an earnings release.

Want the latest recommendations from Zacks Investment Research? Today you can download the top 7 stocks for the next 30 days. Click to get this free report

EYEPOINT PHARMACEUTICALS, INC. (EYPT): Free Stock Analysis Report

To read this article on Zacks.com click here.