Why Gap (GPS) Is Poised To Beat Earnings Estimates Again

Have you been searching for a stock that might be well-positioned to maintain its earnings-beat streak in its upcoming report? It is worth considering Gap (GPS), which belongs to the Zacks Retail - Apparel and Shoes industry.

This clothing chain has seen a nice streak of beating earnings estimates, especially when looking at the previous two reports. The average surprise for the last two quarters was 12.54%.

For the last reported quarter, Gap came out with earnings of $0.53 per share versus the Zacks Consensus Estimate of $0.51 per share, representing a surprise of 3.92%. For the previous quarter, the company was expected to post earnings of $0.52 per share and it actually produced earnings of $0.63 per share, delivering a surprise of 21.15%.

Price and EPS Surprise

For Gap, estimates have been trending higher, thanks in part to this earnings surprise history. And when you look at the stock's positive Zacks Earnings ESP (Expected Surprise Prediction), it's a great indicator of a future earnings beat, especially when combined with its solid Zacks Rank.

Our research shows that stocks with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better produce a positive surprise nearly 70% of the time. In other words, if you have 10 stocks with this combination, the number of stocks that beat the consensus estimate could be as high as seven.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a version of the Zacks Consensus whose definition is related to change. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

Gap currently has an Earnings ESP of +0.08%, which suggests that analysts have recently become bullish on the company's earnings prospects. This positive Earnings ESP when combined with the stock's Zacks Rank #3 (Hold) indicates that another beat is possibly around the corner. We expect the company's next earnings report to be released on March 12, 2020.

Investors should note, however, that a negative Earnings ESP reading is not indicative of an earnings miss, but a negative value does reduce the predictive power of this metric.

Many companies end up beating the consensus EPS estimate, though this is not the only reason why their shares gain. Additionally, some stocks may remain stable even if they end up missing the consensus estimate.

Because of this, it's really important to check a company's Earnings ESP ahead of its quarterly release to increase the odds of success. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.