Wall Street expects higher year-over-year earnings on higher revenue when Restoration Hardware (RH) reports results for the quarter ended January 2022. While this widely known consensus outlook is important to gauge the company’s earnings, a powerful factor that could impact its stock price in the short term is how actual results compare to those estimates.

The earnings report could help the stock rise if these key numbers come in better than expected. On the other hand, if they are missing, the stock may go down.

While management’s discussion of trading conditions on the earnings call will primarily determine the sustainability of the immediate price move and expectations of future earnings, it’s worth a crippling glimpse of the odds. a positive surprise from BPA.

Zacks Consensus Estimate

This furniture and home goods company is expected to post quarterly earnings of $5.61 per share in its upcoming report, representing a year-over-year change of +10.7%.

Revenue is expected to be $928.82 million, up 14.3% from the prior year quarter.

Trend of estimate revisions

The consensus EPS estimate for the quarter remained unchanged for the past 30 days. This essentially reflects how the covering analysts have collectively reassessed their initial estimates over this period.

Investors should keep in mind that an overall change may not always reflect the direction of revisions to estimates by each of the analysts involved.

Price, Consensus and EPS Surprise

Revenue whisper

Estimate revisions prior to a company’s earnings release provide clues to business conditions for the period for which earnings are released. This idea is at the heart of our proprietary surprise prediction model, the Zacks Earnings ESP (Expected Surprise Prediction).

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 the 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.

The story continues

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 have the figures evolved for catering equipment?

For Restoration Hardware, the most accurate estimate is above the Zacks consensus estimate, suggesting that analysts have recently become optimistic about the company’s earnings outlook. This translated into an ESP on revenue of +1.07%.

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

Thus, this combination makes it difficult to conclusively predict that Restoration Hardware will exceed 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, Restoration Hardware was expected to post earnings of $6.68 per share when it actually produced earnings of $7.03, delivering a surprise +5.24% .

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

Restoration Hardware 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.

Stay on top of upcoming earnings announcements with Zacks Earnings Calendar.

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