What you should pay attention to

What you should pay attention to

Richardson Electronics (RELL) is expected to report a year-over-year decline in earnings due to lower sales when it releases earnings for the quarter ending May 2024. This widely-known consensus forecast gives a good idea of ​​the company’s earnings position, but how actual results compare to these estimates is an important factor that could affect the stock price in the near term.

The earnings report could help the stock rise if these key numbers come in better than expected, but if they don’t meet expectations, the stock could decline.

While management’s discussion of the business situation during the earnings call will largely determine the sustainability of the immediate price change and future earnings expectations, it is worth having insight into the chances of a positive EPS surprise.

Zacks Consensus Estimate

This electronic components and communications products company is expected to report quarterly loss at $0.03 per share in its upcoming report, representing a year-over-year change of -127.3%.

Revenue is expected to be $54.55 million, down 7.3% from the same quarter last year.

Trend of estimate revisions

The consensus EPS estimate for the quarter has been revised downward by 41.67% over the past 30 days to sit at current levels, essentially reflecting how analysts have collectively revised their original estimates during this period.

Investors should keep in mind that the direction of individual analysts’ estimate revisions may not be reflected in the overall change.

Whispers of results

Estimate revisions prior to earnings releases provide insight into business conditions for the period in which earnings are released. These insights form the core of our proprietary surprise prediction model – the Zacks Earnings ESP (Expected Surprise Prediction).

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more recent version of the Zacks Consensus Estimate for earnings per share. The idea is that analysts who revise their estimates just before earnings are released have the latest information, which may be more accurate than what they and others contributing to the consensus had previously predicted.

A positive or negative Earnings ESP value theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model is only significant for positive ESP values.

A positive Earnings ESP is a strong indicator of earnings beats, especially when combined with a Zacks Rank of 1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination deliver a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of the Earnings ESP.

Please note that a negative Earnings ESP is not an indication of an earnings miss. Our research shows that it is difficult to predict with any degree of confidence an earnings beat for stocks with negative Earnings ESP values ​​and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How have the numbers for Richardson Electronics developed?

For Richardson Electronics, the Most Accurate Estimate is below the Zacks Consensus Estimate, suggesting that analysts have recently become more pessimistic about the company’s earnings prospects. This has resulted in an Earnings ESP of -380%.

On the other hand, the stock currently has a Zacks Rank of #1.

Because of this combination, it is difficult to conclusively predict whether Richardson Electronics will beat consensus earnings per share estimates.

Do past earnings surprises provide any insight?

Analysts often take into account the extent to which a company has been able to meet consensus estimates in the past when calculating their estimates for future earnings, so it is worth taking a look at the history of surprises to estimate their impact on upcoming numbers.

For the last reported quarter, Richardson Electronics was expected to report earnings of $0.02 per share. In fact, earnings were $0.05, a surprise of +150%.

Over the past four quarters, the company has beaten consensus earnings per share estimates twice.

Bottom line

An above- or below-average earnings forecast is not necessarily the only reason a stock’s price rises or falls. Many stocks lose ground despite above-average earnings forecasts because other factors disappoint investors. Likewise, unforeseen catalysts contribute to many stocks gaining despite below-average earnings forecasts.

However, betting on stocks that beat earnings expectations increases the odds of success. That’s why it’s worth checking a company’s Earnings ESP and Zacks Rank before quarterly earnings are released. Be sure to use our Earnings ESP filter to find the best stocks to buy or sell before they’re released.

Richardson Electronics does not appear to be a compelling candidate for an earnings boost, but investors should also pay attention to other factors when betting on or staying away from this stock ahead of earnings releases.

Stay up-to-date on upcoming earnings announcements with the Zacks Earnings Calendar.

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