CHICAGO, Jan. 26, 2011 /PRNewswire/ -- Stocks in this week's article include: Aflac Inc. (NYSE: AFL), Alliant Techsystems Inc. (NYSE: ATK), American Water Works Co., Inc. (NYSE: AWK), Noble Energy, Inc. (NYSE: NBL) and Power-One, Inc. (NASDAQ: PWER). Kevin Matras puts the odds in your favor for finding companies poised to report positive sales surprises.
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Screen of the Week written by Kevin Matras of Zacks Investment Research:
Of the companies that have so far reported between the official start of this earnings season through the end of last week, 63% have reported positive earnings surprises while 68% reported positive sales surprises. It's been a while since I saw sales surprises outstrip EPS surprises. I think this is a good sign.
And since the tone has been set for the rest of the earnings season, companies that miss on the revenue side will likely not get their day in the sun this time. After cutting costs and increasing profits, the market has started to demand a little more. With the economy doing better, investors are raising the bar and demanding that companies start showing better-than-expected sales growth as well.
These companies will be the standout performers this earnings season...and in the coming earnings seasons as well. Why? Because after cutting costs and increasing margins, the next step is growing sales. And as sales grow, those sales will be worth more than they were in the past when you factor in higher profit margins. And that means greater earnings as well, which of course should beget higher stock prices.
So how do you find companies that'll positively surprise on sales? While there's no such thing as a sure thing in stocks, there are better probabilities.
Of the 68% of companies that positively surprised on sales, 75% of those surprised in the previous quarter as well. Similarly, more than half of the companies that negatively surprised posted a negative sales surprise in the previous quarter.
This all makes sense since companies that positively surprise in the past have a tendency of positively surprising in the future. Likewise, companies that negatively surprise in the past have a tendency to negatively surprise in the future.
So in this week's screen, we'll be putting the odds in our favor for stocks reporting positive sales surprises (and earnings surprises too).
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