Two great examples of this are Microsoft (Nasdaq:MSFT) and Google (Nasdaq:GOOG). Microsoft's early earnings surprises were one of the key indicators to buy the stock and experience massive gains. Similarly, Google put together a string of earnings surprises following its IPO in 2004. Buying in then would have brought big gains in the years that followed. Take a look at these five stocks below. Each has produced a positive earnings surprise in its most recent quarter, and could be a solid candidate for follow-up research. The key is to determine if more positive earnings surprises, and therefore, share price increases, are in store for upcoming quarters. (Consensus estimates can send stocks spiraling - but do they represent reality? To learn more, read Surprising Earnings Results .)
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Company
|
Most Recent EPS Surprise*
|
|
Aloca
(NYSE:AA)
|
+1.5%
|
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Fluor
(NYSE:FLR)
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+18.1%
|
H&R Block
(NYSE:HRB) |
+3.9%
|
|
Johnson & Johnson
(NYSE:JNJ)
|
+5.4%
|
|
Whiting Petroleum
(NYSE:WLL):
|
+11.7%
|
|
*From most recent quarter reported.
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Typically, stocks that are able to produce sizable positive earnings surprises will see share gains in the trading days that follow the announcement. However, earnings surprises are not the only thing to look for. If the market drags a stock's price through the mud, even though it had a positive earnings surprise, there are probably other factors at play, such as a poor revenue outlook. In other words, positive earnings surprises can serve as a good starting point to create a shortlist of companies for follow up research, but by themselves, these surprises shouldn't serve as buy indicators.
Fluor To Surprise Even More?
Fluor (NYSE:FLR) is a mammoth engineering, construction, and maintenance services companies. It serves companies that are engaged in a variety of businesses including: chemical, oil & gas, and mining.
Because of its oil & gas connection, it's perhaps not truly surprising that Fluor's earnings have really taken off in recent years. In its first quarter of this year, the company earned $1.50 per share, which is a country mile north of the 94 cents per share it earned in the comparable period last year. This figure was also miles ahead of the $1.27 per share that analysts polled by Thomson Financial had been expecting.
Wall Street analysts are expecting the company to earn $6.59 per share this year and $7.89 per share in 2009. On top of that robust short-term growth, over the next five years the Street is expecting Fluor to grow its earnings at a pace of 16.7% per year. That is a very healthy expected rate of growth, especially given current economic conditions. As a bonus to that expected growth, the shares pay a small dividend with a current dividend yield of about 0.60%.
Keep The Surprises Coming
While Fluor has been faring well, any stumble, could send the stock down sharply especially in this market. Stocks that report robust earnings growth can still see big declines in price if the actual earnings per share reported miss estimates by even a penny. Likewise, a penny in the other direction can be a huge boost to a company's stock price. Investors should always be on the lookout for companies that manipulate earnings in order to report those extra few pennies.
The key is to perform your own due diligence on the stock to determine if you think it is likely to produce more positive earnings surprises going forward. (To get started, check out Due Diligence In 10 Easy Steps and Common Clues Of Financial Statement Manipulation.)
