By Numer de Guia It looks like the fourth quarter provided some upside surprises in corporate earnings. Some 64% of the 437 companies in the Standard & Poor's 500-stock index that had posted earnings through Feb. 18 topped analysts' expectations, according to Thomson First Call.
All well and good. But a company can beat estimates by a small margin -- which doesn't necessarily mean that its business trends and profit growth are strong. On the flip side, an outfit can beat the average forecast overwhelmingly -- often indicating that the company's expansion is far more robust than analysts originally thought.
BRIGHT FUTURE. What are some of the most attractive names among those that blew past the Street's fourth-quarter expectations? That's what we tried to uncover in this week's screen. We looked for companies that beat analysts' EPS forecasts by the statistical equivalent of a country mile. Their latest quarterly earnings had to be at least +3.0
standard deviations away from the analysts' average estimates for the same period, based on data provided by I/B/E/S. In order to make sure that we had a solid number on Street estimates, we only considered those followed by 20 or more analysts.
And finally, to make sure that the stocks on the list didn't just have their best days behind them and held out prospects for capital appreciation, we screened for those issues S&P equity analysts ranked 4 STARS (buy) or 5 STARS (strong buy). Stocks with those rankings are expected to outperform the overall market over the next 6 to 12 months.
When our screen was completed, these 30 names popped up:
Beating Estimates by a Wide Margin
S&P STARS Rank
Abercrombie & Fitch
Automatic Data Processing
De Guia is an analyst for Standard & Poor's Portfolio Services