Accenture (ACN) is projected to experience a decline in earnings compared to the previous year, despite expecting higher revenues in the quarter ending May 2024.
The consensus outlook provides an overview of the company’s earnings situation, but the actual results will have a significant impact on its stock price in the short term.
If the upcoming earnings report reveals better-than-expected numbers, the stock may see an upward movement. Conversely, if the results fall short of expectations, the stock may decline.
While the management’s discussion on the earnings call will greatly influence the immediate price change and future earnings expectations, it’s useful to consider the likelihood of a positive surprise in earnings per share (EPS).
Zacks Consensus Estimate
The consulting firm is anticipated to announce earnings of $3.14 per share in its upcoming report, a decrease of 1.6% from the previous year. The company is also projected to report revenues of $16.57 billion, which is equivalent to the revenue generated in the same quarter of the previous year.
Estimate Revisions Trend
Over the past 30 days, the consensus estimate for the company’s earnings per share (EPS) for the quarter has been adjusted downward by 0.64%. This indicates that the analysts covering the stock have collectively reevaluated their initial estimates during this period.
It’s important to note that the changes made by individual analysts in their estimates may not always be fully reflected in the overall adjustment. Therefore, investors should consider that the direction of estimate revisions by each analyst may not consistently align with the aggregate change.
Earnings Whisper
Before a company announces its earnings, the revisions made to the estimates by analysts can provide insights into the business conditions for the relevant period. This information forms the basis of the Zacks Earnings ESP (Expected Surprise Prediction) model.
The Zacks Earnings ESP compares the Most Accurate Estimate, which is a more recent version of the Zacks Consensus EPS estimate, to the Zacks Consensus Estimate for the quarter.
The rationale behind this is that analysts who revise their estimates just before an earnings release likely have the latest and potentially more accurate information compared to their earlier predictions and the consensus estimate.
A positive or negative Earnings ESP reading indicates the expected deviation of the actual earnings from the consensus estimate. However, the model’s predictive power is stronger for positive ESP readings only.
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A positive Earnings ESP, especially when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold), is a reliable indicator of a potential earnings beat.
Research has shown that stocks with this combination tend to surprise positively nearly 70% of the time, and having a solid Zacks Rank further enhances the predictive power of the Earnings ESP.
It is important to note that a negative Earnings ESP reading does not necessarily mean an earnings miss. Research suggests that it is challenging to confidently predict an earnings beat for stocks with negative Earnings ESP readings and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).
How Have the Numbers Shaped Up for Accenture?
According to the report, for Accenture, the Most Accurate Estimate is lower than the Zacks Consensus Estimate. This indicates that analysts have recently become more pessimistic about the company’s earnings prospects. As a result, the Earnings ESP is -0.83%.
The stock currently holds a Zacks Rank of #4. Considering these factors, it becomes challenging to confidently predict that Accenture will exceed the consensus EPS estimate.
Does Earnings Surprise History Hold Any Clue?
When analysts estimate a company’s future earnings, they often consider how well the company has matched consensus estimates in the past. Therefore, it’s important to examine the company’s surprise history to understand its impact on upcoming earnings.
In the last reported quarter, Accenture was expected to earn $2.66 per share, but it actually earned $2.77 per share, surpassing expectations by +4.14%.
Looking at the past four quarters, Accenture has beaten consensus EPS estimates four times. This indicates that the company has consistently outperformed analysts’ expectations in terms of earnings.
Considering these factors, it suggests that Accenture has a positive track record of exceeding earnings estimates, which might be taken into account when predicting its future earnings performance.
Bottom Line
Simply beating or missing earnings expectations may not be the only thing that affects a stock’s price. Sometimes, even if a company beats earnings expectations, its stock can still lose value if other factors disappoint investors. On the other hand, a company may report lower than expected earnings, but still gain in value due to unforeseen catalysts.
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However, betting on stocks that are expected to beat earnings expectations can increase the chances of success. That’s why it’s important to check a company’s Earnings ESP and Zacks Rank before its quarterly earnings release. You can use the Earnings ESP Filter to find the best stocks to buy or sell before their earnings report.
Accenture may not be a strong candidate to beat earnings expectations. However, investors should still consider other factors when deciding whether to invest in this stock or not before its earnings release.
