Control4 (CTRL) is expected to experience an increase in its year-over-year performance when it is going to release earnings report on February 4, 2019. The report will be relevant to earnings for the quarter ending on December 2018.
The commonly used approach provides a good idea about the company's earning scenario. But investors need to understand the impact of the actual results to the estimates to find out how stock prices could be affected in the near future.
The stocks might increase in value if Control4 can beat the expectations in their pending earnings report. But if they don't stick up to the numbers, then the stock will move down. The home automation company is the pioneer in home automation IPO and many investors have their eyes on the stocks.
The immediate price change and future earnings predictions will depend on business conditions on the earnings call, a subject for the discussion of the management. Let's take a closer look at the numbers and try to find out if Control 4 can beat the odds of a positive EPS.
What does Zacks Think?
Zacks predicts that Control4 will be able to come up with $0.43 per share in their upcoming report. That puts the year-over-year change to 7.5%.
Revenues are expected to increase by 6.9% compared to the year-ago quarter amounting to $73.06 million. The consensus EPS forecast by Zacks for the quarter is $0.29, based on five analysts' forecast.
The Verdict of Estimate Revisions Trends
Estimate revision trends represent the totality of the assessments made by analysts over a period of time. Control4's consensus EPS estimate for this quarter did not change in the last 30 days.
Do keep in mind that the aggregate change does not necessarily represent the scope of estimate revision by individual analysts.
Earnings Whisper Prediction Model
Investors can make out the business conditions for the specific period covered by earnings report based on estimate revisions. Zacks uses a custom surprise prediction model called Zacks Earnings ESP (Expected Surprise Prediction) to provide insights.
The Zacks ESP takes into account the Zacks Consensus Estimate and Most Accurate Estimate for the quarter to come up with the earnings ESP. Most Accurate Estimate is a metric derived from Zacks Consensus with a definition that changes according to conditions.
The model provides up-to-date information to analysts who want to revise their estimates before an earnings report. The information is often more accurate than the version summed up by different analysts and paves the way for improved prediction.
A positive or negative Earnings ESP value represents the degree of deviation that actual earnings pose in relation to the consensus estimate. The Zacks Earnings ESP model, for instance, is more effective in predicting positive ESP readings.
A positive ESP value goes a long way to predict the chances of beating the earnings. The potential stock becomes more valuable when it attracts a Zacks Rank of:
- Strong Buy (1),
- Buy (2)
- Hold (3).
Stocks with a positive EPS value and Zacks Rank generate 70% positive surprise out of all times. Top ranks from Zacks also boost the predictive capability of Earnings ESP providing better predictability.
On the other hand, a negative Earnings ESP value does not always mean that the company will miss the earnings target. Zacks points it out that it is difficult to predict an earnings miss with confidence based on Zacks Rank Sell (4), Strong Sell (5) and a Negative ESP value.
What does Zacks Earnings ESP Reveal for Control4?
Zacks found the Most Accurate Estimate and the Zacks Consensus Estimate to be the same. That means no analysts think that Control4 will be unable to meet the consensus estimate. Hence, the Earnings ESP is 0%.
Control4 stocks are in the 3rd position in Zacks Rank which is hold. The combination makes it challenging to accurately predict that the company will exceed the consensus EPS estimate.
What does the Historical Earnings Surprise Disclose?
Analysts look at the records to find out how many times the company has been able to beat the estimates to estimate future earnings. So let's take a brief look at how Control4 performed last year to make an idea of the future numbers.
Control4 last reported its earnings results on November 2018. The home automation company disclosed a EPS of $0.38 which exceeded the Zacks Consensus Estimate of $0.36 by $0.02. That generated a surprise reading of +5.56%. Control4 earned an EPS of $0.35 in the same quarter of the last year.
The company had generated a revenue of $71.59 million beating the figure of $71.52 million predicted by the analysts.
Control4 came on top of the EPS estimates four times in all the last four quarters.
Missing the earnings or achieving it doesn't always directly impact the stock decreasing or increasing in value. A stock might very well go down in spite of beating the earnings due to various factors that go against investors. On the other hand, the stock may go up even if it misses the ESP.
Theoretically, it can be said that betting on stocks that are expected to beat earnings improves the chances of success. It makes sense to check out the Zacks Rank and Earnings ESP before an earnings report to make informed predictions.
From the numbers we discussed, it doesn't appear that Control4 is a strong candidate for exceeding the earnings. Interestingly, the analysts at DA Davidson announced their FY2023 EPS estimate for Control4. The analysts think that the company will be able to come up with earnings of $2.33 per share in that year.
Investors need to consider all the factors to decide whether it's useful to bet on the stock or not ahead of the earnings report.