IInvestors may want to bet on Prestige Brands (PBH) as it was recently upgraded to a Zacks Rank #2 (Buy). This upgrade primarily reflects an upward trend in earnings estimates, which is one of the most powerful forces affecting stock prices.
The only determinant of the Zacks rating is the evolution of a company’s earnings. The Zacks consensus estimate – the consensus of EPS estimates from sell-side analysts covering the stock – for the current year and subsequent years is tracked by the system.
Since a changing earnings picture is a powerful factor influencing short-term stock price movements, the Zacks Rating System is very useful for individual investors. They may find it difficult to make decisions based on rating upgrades 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 Prestige Brands essentially reflects positivity about its earnings outlook, which could translate into buying pressure and an increase in its stock price.
The most powerful force impacting stock prices
Changes in a company’s future earnings potential, as reflected in earnings estimate revisions, have been found to be strongly correlated with short-term changes in its share price. This is partly because of the influence of institutional investors who use earnings and earnings estimates to calculate the fair value of a company’s stock. An increase or decrease in earnings estimates in their valuation models simply translates to a higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their mass investment action then leads to a price movement for the stock.
For Prestige Brands, the rise in earnings estimates and the resulting rating upgrade fundamentally means an improvement in the company’s underlying businesses. And investors’ appreciation of this improving trading trend should push the stock higher.
Harnessing the Power of Earnings Estimate Revisions
Empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock movements, so it could be really rewarding if these revisions are followed when making an investment decision. This is where the proven Zacks Rank stock rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions.
The Zacks Rank stock rating system, which uses four factors tied to earnings estimates to classify stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive track record. externally audited record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. You can see the full list of Zacks #1 Rank (Strong Buy) stocks today here >>>> .
Revisions to earnings estimates for prestige brands
This drug distributor is expected to earn $3.96 per share for the fiscal year ending March 2022, representing a 22.2% year-over-year change.
Analysts have steadily raised their estimates for Prestige Brands. Over the past three months, Zacks’ consensus estimate for the company has risen 1.8%.
Unlike overly optimistic Wall Street analysts whose rating systems tend to favor favorable recommendations, the Zacks rating system maintains an equal proportion of “buy” and “sell” ratings for its entire universe of over 4 000 shares at any time. Regardless of market conditions, only the 5% of stocks covered by Zacks earn a “Strong Buy” rating and the next 15% earn a “Buy” rating. Thus, placing a stock in the top 20% of stocks covered by Zacks indicates its superior earnings estimate revision function, making it a strong candidate for outperforming the market in the short term.
You can read more about the Zacks Ranking here >>>
Prestige Brands’ upgrade to Zacks Rank #2 puts it in the top 20% of stocks covered by Zacks in terms of estimate revisions, implying the stock could rise in the near term.
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Prestige Consumer Healthcare Inc. (PBH): Free Stock Analysis Report
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