Guess the trend before next week’s release

Wall Street expects a year-over-year increase in earnings on higher revenue when Rivian Automotive ( RIVN ) reports results for the quarter ended September 2023. While this widely known consensus outlook is important in gauging the company’s earnings picture, a powerful factor, that could affect the stock price in the short term is how actual results compare to those forecasts.

The earnings report, which is expected to be released on November 7, 2023, could help the stock move higher if these key numbers are better than expected. On the other hand, if they miss, the stock could go lower.

While the sustainability of immediate price change and future earnings expectations will depend mostly on management’s discussion of business conditions on the earnings call, it is worth reducing the likelihood of a positive EPS surprise.

Zacks Consensus Estimate

This motor vehicle and passenger car maker is expected to report a quarterly loss of $1.36 per share in its upcoming report, representing a year-over-year change of +13.4%.

Revenue is expected to be $1.36 billion, up 154.6% from the previous quarter.

Trend of rating revisions

The consensus EPS estimate for the quarter has been revised 0.31% lower over the past 30 days to the current level. This is essentially a reflection of how covering analysts have collectively re-evaluated their initial estimates over this period.

Investors should note that the direction of a rating revision by each of the covering analysts may not always be reflected in the overall change.

Earnings Whisper

Forecast revisions before a company’s results are released offer an indication of business conditions for the period whose results are released. This insight is the basis of our proprietary surprise forecasting model – Zacks Earnings ESP (Expected Surprise Forecast).

The Zacks Earnings ESP compares the top estimate to the Zacks Consensus Estimate for the quarter; the most accurate estimate is a newer version of the Zacks Consensus EPS estimate.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 forecasts just before the earnings release have the latest information, which could potentially be more accurate than what they and other contributors to the consensus had previously predicted.

Thus, a positive or negative earnings ESP reading theoretically indicates the likely deviation of actual earnings from the consensus estimate. However, the predictive power of the model was significant only for positive ESP readings.

A positive earnings ESP is a strong predictor of earnings outperforming, especially when combined with a Zacks Rank #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 ESP earnings.

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

How did the numbers shape up for Rivian Automotive?

For Rivian Automotive, the best estimate is lower than the Zacks Consensus Estimate, suggesting that analysts are recently bearish on the company’s earnings outlook. This resulted in a gain ESP of -1.78%.

On the other hand, the stock currently carries a Zacks Rank #3.

So this combination makes it difficult to confidently predict that Rivian Automotive will beat the consensus EPS estimate.

Is there any trace of the history of Surprise earnings?

Analysts often consider how well a company has been able to match consensus estimates in the past when calculating their forecasts for future earnings. So it’s worth looking at the history of the surprise to gauge its impact on the upcoming number.

For the last reported quarter, Rivian Automotive was expected to report a loss of $1.41 per share, when it actually generated a loss of $1.08, delivering a +23.40% surprise.

Over the past four quarters, the company has beaten consensus EPS estimates four times.

Bottom row

Earnings overshoots or misses may not be the only basis for a stock to move up or down. Many stocks end up losing ground despite earnings growth due to other factors that frustrate investors. Likewise, unforeseen catalysts are helping a number of stocks rise despite a lack of earnings.

However, betting on stocks that are expected to beat earnings expectations does increase the odds of success. That’s why it’s worth checking the company’s Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure you use our ESP Earnings Filter to find the best stocks to buy or sell before they are reported.

Rivian Automotive does not appear to be a compelling profit candidate. However, investors should pay attention to other factors to bet on this stock or stay away from it before the earnings release.

Keep up with upcoming earnings announcements with the Zacks Earnings Calendar.

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