These 2 Consumer Staples Stocks Could Beat Earnings: Why They Should Be on Your Radar

The article details Zacks' Earnings ESP (Expected Surprise Prediction) as a valuable tool for identifying stocks likely to exceed earnings estimates. This metric, derived from the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate, has historically shown that stocks with a positive ESP and a Zacks Rank #3 (Hold) or better have a 70% probability of reporting a positive earnings surprise, contributing to an average 28.3% annual return over a 10-year backtest. Consumer staples companies Smucker (SJM) and Freshpet (FRPT) are highlighted as current examples, both exhibiting positive ESPs (+4.45% and +1.66% respectively), suggesting a strong likelihood of beating analyst expectations in their upcoming financial reports.

Analysis

The provided research highlights the Zacks Expected Surprise Prediction (ESP) as a quantitative tool for identifying potential earnings beats. According to its 10-year backtest, a positive ESP combined with a Zacks Rank of #3 (Hold) or higher has preceded a positive earnings surprise 70% of the time, generating an average annual return of 28.3%. Two Consumer Staples stocks, Smucker (SJM) and Freshpet (FRPT), are presented as current examples fitting this criteria. Smucker, with an earnings report 15 days away, exhibits a significant positive ESP of +4.45%, based on a Most Accurate Estimate of $1.99 per share versus a consensus of $1.90. Freshpet also shows a positive, albeit smaller, ESP of +1.66% ($0.44 vs. $0.43), with its report 83 days out. Both companies currently hold a Zacks Rank of #3 (Hold), suggesting their base expectation is to perform in-line with the market, with the positive ESP acting as an indicator for a potential short-term upside catalyst.

Key Decisions for Investors

• Investors focused on earnings-driven catalysts could consider using the positive ESP signals for Smucker (+4.45%) and Freshpet (+1.66%) as a basis for further due diligence ahead of their respective earnings reports.
• Given the imminent earnings release for Smucker in 15 days, traders might explore short-term bullish strategies to capitalize on a potential earnings beat, while noting the neutral 'Hold' rating implies that upside may be event-specific.
• For Freshpet, with a more distant reporting date of 83 days, the positive ESP warrants placing the stock on a watchlist to monitor for any further analyst estimate revisions or changes to its Zacks Rank.
• It is crucial to recognize that the Zacks ESP is a probabilistic indicator, and the #3 (Hold) rank on both stocks suggests that without a significant earnings surprise, their performance is expected to be in-line with the broader market.