Wall Street expects earnings to increase

Ashland (ASH) is expected to report year-over-year earnings growth on higher revenues in its June 2021 quarter report. This widely known consensus forecast paints a good picture of the company’s earnings picture, but how actual results compare to these estimates is a significant factor that could impact the near-term share price.

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

The chemical company is expected to post quarterly earnings per share of $1.27 in its upcoming report, representing a year-over-year change of +51.2%.

Revenue is expected to be $635.86 million, up 10.8% 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 aggregate change does not necessarily reflect the direction of estimate revisions by each major analyst.

Price, consensus and EPS surprise

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 in Ashland?

For Ashland, the Most Accurate Estimate is consistent with the Zacks Consensus Estimate, which suggests that there is no recent analyst view that differs from what was used to support the consensus estimate. This resulted in an earnings ESP of 0%.

On the other hand, the stock currently sports a Zacks Rank of #4.

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

Does the history of surprising results have any clue?

When calculating estimates of a company’s future earnings, analysts often consider how well the company has been able to match previous estimates. So it’s worth taking a look at the history of surprises to assess its impact on the upcoming issue.

For the last reported quarter, Ashland was expected to post earnings of $1.36 per share when it actually produced earnings of $1.05, resulting in a surprise of -22.79%.

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.

Ashland doesn’t seem like a compelling candidate for earnings beats. 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

Ashland Global Holdings Inc. (ASH): Free Stock Analysis Report

To read this article on Zacks.com click here.