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Investors may need to bet on Honda Motor (HMC) as it recently rose to the No. 2 spot from Zacks (buy). This upward revision basically reflects an upward trend in earnings estimates, which is one of the toughest forces influencing stock prices. .
The determinant of the Zacks score is the evolution of a company’s earnings. The Zacks consensus estimate (the consensus of sell-side analysts’ EPS estimates covering inventory) for the current year and subsequent years is tracked through the system.
Individual investors find it difficult to make decisions based on score improvements made by Wall Street analysts, as they are mostly based on subjective points that are difficult to see and measure in real-time. In those situations, the Zacks scoring formula is useful because of the strength of the earnings movement in determining short-term stock price movements.
As such, Honda’s improved Zacks score is necessarily a positive commentary on its earnings outlook that could have a favorable effect on its stock price.
The Toughest Force Affecting Stock Prices
The evolution of a company’s long-term earnings potential, as reflected in revisions to earnings estimates, has been found to be highly correlated with the short-term movement of its percentage values. This is partly due to the influence of institutional investors who use profits. and profit estimates to calculate the fair cost of a company’s percentages. An increase or minimization of earnings estimates in their valuation models only generates a fair higher or lower cost of a stock, and institutional investors buy or sell it. Their massive investment action then leads to a value movement of security.
Fundamentally, the increase in earnings estimates and the resulting improvement in Honda’s score signify an improvement in the company’s underlying business. Investors show their appreciation for this ever-improving business trend by pushing inventory higher.
Harnessing the Power of Earnings Estimate Revisions
Empirical studies show a strong correlation between trends in earnings estimate revisions and short-term inventory market movements. So, it can be rewarding to stick to those reviews to make an investment decision. This is where the inventory score formula displayed by Zacks Rank plays a vital role. , as it leverages the strength of earnings estimate revisions.
The Zacks Rank inventory scoring system, which uses 4 points similar to earnings estimates to categorize inventories into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Sell strong), has an impressive externally audited following. record, with Zacks Rank #1 stocks experiencing an average annual decline of +25% since 1988. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>.
Honda Earnings Estimate Revisions
For the fiscal year ending March 2024, the automaker is expected to earn $4. 19 per share, a 38. 3% increase from what was announced a year ago.
In the past three months, the Zacks consensus estimate for the company has risen 6. 6%.
Conclusion
Unlike overly positive Wall Street analysts whose scoring formulas tend to favor favorable recommendations, Zacks’ scoring formula maintains an equal ratio of “buy” and “sell” scores for its entire universe of more than 4,000 inventories at any given time. Under market conditions, only the most sensitive 5% of inventories covered through Zacks get a “Strong Buy” score and the next 15% get a “Buy” score. Therefore, finding inventory in the most sensitive 20% of inventories hedged through Zacks indicates its impressive earnings estimate review functionality, making it a strong candidate for above-market returns in the short term.
You can learn more about the Zacks Rank here >>>
Honda’s upgrade to Zacks’ second-place spot puts it in the most sensible 20% of inventories covered through Zacks in terms of estimate revisions, implying that inventory could only be in the short term.
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