Oall Street expects flat earnings from the prior year quarter on higher revenue when Angel Oak Mortgage (AOMR) reports results for the quarter ended June 2022. While this widely known consensus outlook is important to gauge the company’s earnings, a powerful factor that could impact its stock price in the short term is how actual results compare to those estimates.
The stock could rise if these key numbers exceed expectations in the next earnings report, which is due out on August 9. On the other hand, if they fail, the stock could go down.
While management’s discussion of trading conditions in the earnings call will primarily determine the sustainability of the immediate price move and future earnings expectations, it’s worth a crippling glimpse of the odds. positive surprise from BPA.
Zacks consensus estimate
The real estate finance company is expected to post quarterly earnings of $0.45 per share in its upcoming report, which is no change from the year-ago quarter.
Revenue is expected to be $30.2 million, up 148.8% from the prior year quarter.
Trend of estimate revisions
The consensus EPS estimate for the quarter has been revised upwards by 1.11% in the past 30 days from the current level. This essentially reflects how the covering analysts have collectively reassessed their initial estimates over this period.
Investors should keep in mind that an overall change may not always reflect the direction of revisions to estimates by each of the analysts involved.
Estimate revisions prior to a company’s earnings release provide clues to business conditions for the period for which earnings are released. This idea is at the heart of our proprietary surprise prediction model — the Zacks ESP Earnings (surprise prediction expected).
The Zacks Earnings ESP compares the most accurate estimate to the Zacks consensus estimate for the quarter; the most accurate estimate is a more recent version of Zacks Consensus’ EPS estimate. The idea here is that analysts revising their estimates just before the earnings release have the latest information, which could potentially be more accurate than they and other consensus contributors predicted earlier.
Thus, a positive or negative reading of the ESP on earnings theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only significant for positive ESP readings.
A positive earnings ESP is a good predictor of an earnings beat, especially when combined with a Zacks rank of #1 (strong buy), 2 (buy), or 3 (hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the timeand a strong Zacks ranking actually increases the predictive power of Earnings ESP.
Please note that a negative ESP reading on earnings is not indicative of a shortfall. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative ESP readings on earnings and/or a Zacks rating of 4 (sell) or 5 (strong sell).
How have the numbers evolved for Angel Oak?
For Angel Oak, the most accurate estimate is lower than the Zacks consensus estimate, suggesting that analysts have recently turned bearish on the company’s earnings outlook. This translated into an ESP on revenue of -0.74%.
On the other hand, the stock currently carries a Zacks rank of #2.
Thus, this combination makes it difficult to conclusively predict that Angel Oak will exceed the BPA consensus estimate.
Does the history of the earnings surprise contain a clue?
Analysts often look at how well a company has been able to match consensus estimates in the past while calculating its estimates for future earnings. It is therefore worth taking a look at the surprise history to assess its influence on the number to come.
For the last reported quarter, Angel Oak was expected to post a profit of $0.40 per share when it actually produced a profit of $1.49, offering a surprise of +272.50 %.
In the past four quarters, the company has beaten consensus EPS estimates twice.
A beat or failure in earnings may not be the only basis for a stock to move higher or lower. Many stocks end up losing ground despite declining earnings due to other factors that disappoint investors. Similarly, unexpected catalysts help a number of stocks gain despite a shortfall.
That said, betting on stocks that are expected to exceed earnings expectations increases the odds of success. That’s why it’s worth checking a company’s ESP earnings and Zacks ranking before it’s quarterly release. Be sure to use our Income ESP filter to discover the best stocks to buy or sell before they are released.
Angel Oak doesn’t seem like a compelling candidate to beat earnings. However, investors should also pay attention to other factors to bet on this stock or walk away from it before its results are released.
Stay up to date with upcoming results announcements with the Zacks Earnings Schedule.
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