IInvestors may want to bet on Vectrus (VEC), as it was recently upgraded to rank 2 of Zacks (Buy). This rating change essentially reflects an upward trend in earnings estimates – one of the most powerful forces impacting stock prices.
Zacks’ rating is based solely on the evolution of a company’s earnings. It tracks EPS estimates for the current year and subsequent years from analysts on the short side covering the stock via a consensus measure – the Zacks consensus estimate.
Since a changing earnings picture is a powerful factor influencing short-term stock price movements, Zacks’ rating system is very useful for individual investors. They may find it difficult to make decisions based on rating hikes by Wall Street analysts, as these are primarily driven by subjective factors that are difficult to see and measure in real time.
Therefore, Zacks’ rating upgrade for Vectrus essentially reflects a positivity about its earnings outlook, which could translate into buying pressure and an increase in its share price.
Most powerful force impacting stock prices
The change in a company’s future earnings potential, as reflected in revisions to earnings estimates, has been found to correlate strongly with the movement of its stock’s short-term prices. The influence of institutional investors partly contributes to this relationship, as these leading professionals use earnings and earnings estimates to calculate the fair value of a company’s shares. An increase or decrease in earnings estimates in their valuation models simply results in a higher or lower fair value of a stock, and institutional investors typically buy or sell it. Their bulk investing action then leads to a price movement for the stock.
For Vectrus, the rise in earnings estimates and the resulting rating uplift fundamentally mean an improvement in the underlying business of the company. And investor appreciation of this improving business trend should push the stock higher.
Harnessing the Power of Revisions to Profit Estimates
As empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock movements, tracking such revisions to make an investment decision could be truly rewarding. This is where Zacks Rank’s proven stock rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions.
Zacks Rank’s stock rating system, which uses four factors related to earnings estimates to rank stocks into five groups, ranging from Zacks Rank # 1 (Strong Buy) to Zacks Rank # 5 (Strong Sell), has a track impressive externally audited. record, with Zacks Rank # 1 stocks generating an average annual return of + 25% since 1988. You can see the full list of today’s Zacks # 1 Rank (Fort Buy) stocks here >>>>.
Revisions to profit estimates for Vectrus
This government services company is expected to earn $ 4.76 per share for the year ending December 2021, which is a 51.6% year-over-year change.
Analysts have steadily increased their estimates for Vectrus. Over the past three months, Zacks’ consensus estimate for the company has risen 21.9%.
Unlike the overly optimistic Wall Street analysts whose rating systems tend to be weighted towards favorable recommendations, Zacks’ rating system maintains an equal proportion of “buy” and “sell” ratings across its universe. more than 4000 actions at any time. Regardless of market conditions, only the 5% of stocks covered by Zacks are rated “Strong Buy” and the next 15% are rated “Buy”. So placing a stock in the top 20% of stocks covered by Zacks indicates its superior function of reviewing earnings estimates, making it a strong candidate for producing above-market returns in the short term.
You can learn read more about the Zacks leaderboard here >>>
Upgrading Vectrus to Rank 2 of Zacks places it in the top 20% of stocks covered by Zacks in terms of estimate revisions, implying that the stock could rise in the short term.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.