Can Gap (GPS) Keep the Earnings Surprise Streak Alive?

Looking for a stock that has been consistently beating earnings estimates and might be well positioned to keep the streak alive in its next quarterly report? Gap (GPS), which belongs to the Zacks Retail - Apparel and Shoes industry, could be a great candidate to consider.

When looking at the last two reports, this clothing chain has recorded a strong streak of surpassing earnings estimates. The company has topped estimates by 12.54%, on average, in the last two quarters.

For the most recent quarter, Gap was expected to post earnings of $0.51 per share, but it reported $0.53 per share instead, representing a surprise of 3.92%. For the previous quarter, the consensus estimate was $0.52 per share, while it actually produced $0.63 per share, a surprise of 21.15%.

Price and EPS Surprise

Thanks in part to this history, there has been a favorable change in earnings estimates for Gap lately. In fact, the Zacks Earnings ESP (Expected Surprise Prediction) for the stock is positive, which is a great indicator of an earnings beat, particularly 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 +5.43%, 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 #2 (Buy) indicates that another beat is possibly around the corner. We expect the company's next earnings report to be released on February 27, 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, but that may not be the sole basis for their stocks moving higher. On the other hand, some stocks may hold their ground 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.

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