Herbalife LTD analyst estimate. (HLF) to signal a decline in revenue: what to watch out for – July 26, 2022

The market expects Herbalife LTD. (HLF Free Report) to generate lower year-over-year earnings due to lower revenue when releasing results for the quarter ended June 2022. This widely known consensus outlook is important in assessing the picture of company earnings, but a powerful factor that could influence its short-term course is how actual results compare to those estimates.

The stock could rise if these key numbers exceed expectations in the next earnings report, which is due out on August 2. On the other hand, if they fail, the stock could go down.

While the sustainability of the immediate price move and future earnings expectations will depend primarily on management discussing trading conditions on the earnings call, it is worth handicapping the likelihood of a positive surprise from the EPS.

Zacks consensus estimate

This company is expected to post quarterly earnings of $0.63 per share in its next report, representing a year-over-year change of -58.6%.

Revenue is expected to be $1.3 billion, down 16.6% from the prior year quarter.

Trend of estimate revisions

The consensus EPS estimate for the quarter has been revised down 8.99% in the past 30 days from the current level. This essentially reflects how the covering analysts have collectively reassessed their initial estimates over this period.

Investors should keep in mind that the direction of revisions to estimates by each of the covering analysts may not always be reflected in the overall change.

Revenue whisper

Estimate revisions prior to a company’s earnings release provide clues to business conditions for the period for which earnings are released. Our proprietary surprise prediction model – the Zacks Earnings ESP (Expected Surprise Prediction) – is based on this idea.

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 Zacks Consensus’ EPS estimate. The idea here is that analysts revising their estimates just before the earnings release have the latest information, which could potentially be more accurate than they and other consensus contributors predicted earlier.

Thus, a positive or negative reading of the ESP on earnings 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 readings.

A positive earnings ESP is a good predictor of an earnings beat, especially when combined with a Zacks rank of #1 (strong buy), 2 (buy), or 3 (hold). Our research shows that stocks with this combination produce a positive surprise almost 70% of the time, and a strong Zacks ranking actually increases the predictive power of Earnings ESP.

Please note that a negative ESP reading on earnings is not indicative of a shortfall. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative ESP readings on earnings and/or a Zacks rating of 4 (sell) or 5 (strong sell).

How were the numbers shaped for Herbalife LTD.

For Herbalife LTD. The most accurate estimate is higher than the Zacks consensus estimate, suggesting analysts have recently become optimistic about the company’s earnings outlook. This translated into an ESP on revenue of +4.76%.

On the other hand, the stock currently carries a Zacks rank of #4.

Thus, this combination makes it difficult to conclusively predict that Herbalife LTD. Will beat the BPA consensus estimate.

Does the history of the earnings surprise contain a clue?

When calculating estimates of a company’s future earnings, analysts often look at how closely it may have matched past consensus estimates. It is therefore worth taking a look at the surprise history to assess its influence on the number to come.

For the last reported quarter, Herbalife LTD. Would post earnings of $0.87 per share when it actually produced earnings of $0.99, delivering a surprise +13.79%.

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

Conclusion

A beat or failure in earnings may not be the only basis for a stock to move higher or lower. Many stocks end up losing ground despite declining earnings due to other factors that disappoint investors. Similarly, unexpected catalysts help a number of stocks gain despite a shortfall.

That said, betting on stocks that are expected to exceed earnings expectations increases the odds of success. That’s why it’s worth checking a company’s ESP Earnings and Zacks Ranking before its quarterly release. Be sure to use our earnings ESP filter to discover the best stocks to buy or sell before they are released.

Herbalife Ltd. Doesn’t seem like a compelling candidate to beat profits. However, investors should also pay attention to other factors to bet on this stock or walk away from it before its results are released.

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