R1 RCM Inc. earnings are expected to decline. (RCM) for the first quarter

Wall Street expects year-over-year profits to decline on higher revenues as R1 RCM Inc. (RCM) will report earnings for the quarter ended March 2023. While this widely known consensus outlook is important in assessing the company’s earnings picture, a powerful factor that could impact the company’s near-term stock price is the comparison of actual results to estimates.

Shares could move higher if these key numbers meet expectations in the upcoming earnings report, due on May 4. On the other hand, if these key numbers are not met, 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

The company is expected to report break-even quarterly earnings per share in an upcoming report, representing a year-over-year change of -100%.

Revenue is expected to be $546.61 million, up 41.7% from the year-ago quarter.

Estimate the trend of change

The consensus EPS estimate for the quarter has been revised upwards by 16.67% over the last 30 days to the current level. This broadly reflects how analysts covering the data have collectively re-evaluated their initial estimates during this period.

Investors should note that the aggregate change does not necessarily reflect the direction of estimate revisions by each major analyst.

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. This insight is at the heart of our proprietary surprise prediction model, the Zacks Earnings ESP.

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 did the numbers stack up for R1 RCM Inc.

In the case of R1 RCM Inc. The Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting that analysts have recently become bearish on the company’s earnings prospects. This resulted in an earnings ESP of -5500%.

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

Therefore, this combination makes it difficult to clearly predict that R1 RCM Inc. will exceed consensus EPS estimates.

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 history of surprises to assess its impact on the upcoming issue.

Last quarter, it was expected that R1 RCM Inc. will report a loss of $0.03 per share when in fact it generated a loss of $0.09, resulting in a surprise of -200%.

Over the last four quarters, the company has surpassed consensus EPS estimates only once.

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.

R1 RCM Inc. It doesn’t seem like a compelling candidate to beat earnings. 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.

Expected results of an industry player

Among stocks in the Zacks Technology Services industry, Veradigm (MDRX) is soon expected to post earnings of $0.18 per share for the quarter ended March 2023. These estimates indicate a year-over-year change of +38.5%. Revenue for the quarter is expected to be $148.21 million, up 3.9% from the same quarter last year.

Over the last 30 days, the consensus EPS estimate for Veradigm has been revised 1.1% to the current level. Nevertheless, the company currently has an Earnings ESP of -2.78%, reflecting the lower value of the most accurate estimate.

This earnings ESP, combined with the Zacks Rank #3 (Hold), makes it difficult to firmly predict that Veradigm will surpass the consensus EPS estimate. The company has topped consensus EPS estimates three times over the last four quarters.

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