Zacks Equity Research has recently upgraded Apple stock to a Zacks Rank #1 (Strong Buy) which essentially reflects an upward trend in earnings estimates, one of the most powerful forces impacting stock prices.
A company’s changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate — the consensus measure of EPS estimates from the sell-side analysts covering the stock — for the current and following years.
The change in a company’s future earnings potential, as reflected in earnings estimate revisions, and the near-term price movement of its stock are proven to be strongly correlated. That’s partly because of the influence of institutional investors that use earnings and earnings estimates for calculating the fair value of a company’s shares. An increase or decrease in earnings estimates in their valuation models simply results in higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their transaction of large amounts of shares then leads to price movement for the stock.
For Apple, rising earnings estimates and the consequent rating upgrade fundamentally mean an improvement in the company’s underlying business. And investors’ appreciation of this improving business trend should push the stock higher.
MacDailyNews Take: It’d be nice to see as Apple remains woefully undervalued currently!
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“upward trend in earnings estimates, one of the most powerful forces impacting stock prices”
IMHO it is one of the best predictive metrics. If you look at an aggregate ratings board that gives you last 90 days, last 60 days, last 30 days ratings changes, if you see positives, especially rev or earnings estimate upward revisions, increasing from 90 to more in 60 to more in 30, that is a gold standard predictor (though nothing, nada, zilch is a certainty).