ServiceNow (NOW) is expected to deliver year-over-year increases in earnings to higher-income earnings when it reports results for the quarter ended June 2022. This well-known consensus outlook provides a good idea of the company’s earnings picture, but how The actual results compare to these estimates is a strong factor that could affect its near-term stock price.
The stock could rise higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on July 27. On the other hand, if they miss, the stock could be lower.
Although management’s discussion of business conditions on call to earnings will often determine the continuation of immediate price changes and expectations on future earnings, it’s worth having a handy insight into the possibility of a positive surprise in EPS.
Zacks Consensus Estimate
The maker of this software that automates the technology operations of companies is expected to post quarterly revenue of $ 1.53 per share in its upcoming report, which represents a year-over-year change. and +7.8%.
Revenues are expected to be $ 1.76 billion, up 25.2% from the previous quarter.
Estimate the Trend of Changes
The consensus EPS estimate for the quarter was revised 0.27% lower over the past 30 days at current levels. This is essentially a reflection of how the covering analysts collectively re-assessed their preliminary estimates during this period.
Investors should note that an aggregate change may not always reflect the direction of changes in the estimates of each of the covering analysts.
Whisper of Income
Estimating changes prior to the release of company earnings offers clues to business conditions for the period in which the results will appear. Our proprietary surprise prediction model – the Zacks Earnings ESP (Expected Surprise Prediction) – has this insight at its core.
Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a newer version of the Zacks Consensus EPS estimate. The idea here is that analysts who revise their estimates before earnings are released have the latest information, which is likely to be more accurate than they and other contributors to the consensus predicted earlier.
Thus, reading positive or negative Earnings ESP is theoretically indicative of the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is significant for positive ESP readings only.
A positive Earnings ESP is a strong predictor of a beat of earnings, especially when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination produce positive surprises almost 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.
Please note that a negative Earnings ESP reading does not indicate an earnings miss. Our research shows that it is difficult to predict a beat in earnings with any level of confidence for stocks with negative Earnings readings in ESP and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).
How Are Numbers Formed for Service Today?
For ServiceNow, the Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting that analysts have recently been weak on the company’s earnings prospects. This resulted in ESP Revenue of -8.06%.
On the other hand, the stock currently has a Zacks Rank of #3.
Thus, this combination makes it difficult to conclusively predict that ServiceNow will beat the agreed EPS estimate.
Does Earnings Surprise History Have a Clue?
Analysts often consider the extent to which a company has been able to match consensus estimates in the past while calculating their estimates for its future earnings. So, it’s worth looking at the history of surprise for measuring its influence on upcoming numbers.
For the last reported quarter, ServiceNow is expected to post revenues of $ 1.69 per share when it actually makes revenues of $ 1.73, delivering a surprise +2.37%.
In the last four quarters, the company has beaten consensus EPS estimates four times.
Bottom Line
A beat or unearned profit may not be the only basis for a stock moving higher or lower. Many stocks end up losing ground despite a losing profit due to other factors that frustrate investors. Similarly, unexpected catalysts help some stocks earn despite loss of profit.
That said, betting on stocks that are expected to beat earnings expectations increases the likelihood of success. This is why it’s worth checking out a company’s Earnings ESP and Zacks Rank before its quarterly release. Be sure to use our Earnings ESP Filter to find out the best stocks to buy or sell before they report.
ServiceNow does not appear to be a compelling revenue beat candidate. However, investors should also pay attention to other factors for betting on this stock or avoiding it before the release of its earnings.
Expected Results of an Industry Player
Roper Technologies (ROP), another stock in the Zacks Computers – IT Services industry, is expected to report earnings per share of $ 3.82 for the quarter ended June 2022. This estimate refers to one year. -yearly change of +1.6%. Revenues for the quarter are expected to be $1.54 billion, down 3.2% from the previous quarter.
The consensus EPS estimate for Roper Technologies has been revised 0.2% lower over the past 30 days from current levels. However, a lower Most Accurate Estimate resulted in an Earnings ESP of -1.53%.
This Earnings ESP, along with its Zacks Rank #4 (Sell), makes it difficult to conclusively predict that Roper Technologies will beat the agreed EPS estimate. The company lost consensus EPS estimates in each of the following four quarters.
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