When Wells Fargo (WFC stock) releases its results for the quarter that ended in September 2022, Wall Street anticipates that the company’s profitability will have decreased year-over-year due to reduced sales. Although this widely disseminated consensus expectation is critical for evaluating the company’s earnings picture, the degree to which the actual results compare to the predictions is a significant element that has the potential to influence the stock price shortly.

If the impending earnings report shows that these critical metrics are better than expected, the stock price may rise upward. On the other side, the stock price can go down if they don’t meet their target.

It is essential to estimate the likelihood of a positive EPS surprise even though the management’s description of business circumstances on the earnings call will be the primary factor determining how long the recent price shift will last and how much future profits are anticipated to increase.

The estimation of Zacks’s consensus

In the forthcoming report, the largest mortgage lender in the United States is anticipated to announce quarterly earnings of $1.10 per share. This would indicate a change of -6% when compared to the previous year’s results.

It is anticipated that total revenues will amount to $18.69 billion, representing a 0.8% decrease from last year’s period.

Estimated Changes Over Time Trend

The consensus estimate of earnings per share for the quarter has been revised to 0.6% higher than its current level over the course of the past 30 days. This is simply a reflection of how the covering analysts have collectively evaluated their initial projections over the course of this time, and it is essential to note that this is the case.

Investors need to remember that an aggregate change may not necessarily represent the direction of estimate revisions made by each of the covering analysts. This is something that they should keep in mind.

A Whisper of Earnings

Before releasing a company’s earnings report, estimate revisions might provide insight into the state of the underlying business during the time period whose results are being reported. This understanding forms the basis of our unique methodology for predicting unexpected outcomes, which we refer to as the Zacks Earnings ESP (Expected Surprise Prediction).

The Zacks Earnings ESP is a comparison that is made between the Zacks Most Accurate Estimate and the Zacks Consensus Estimate for the quarter. The Zacks Most Accurate Estimate is a more current version of the Zacks Consensus EPS estimate. The reasoning for this is that analysts who revise their predictions just before the publication of results have access to the most recent information, which has the potential to be more accurate than what they and others who contributed to the consensus had projected previously.

As a result, an Earnings ESP value that is positive or negative shows, theoretically speaking, the expected departure of the actual earnings from the consensus estimate. On the other hand, the model’s predictive value is only significant for positive ESP readings.

When paired with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3, a positive Earnings ESP is a powerful indicator of an earnings beat. This is especially true when the Earnings ESP is combined with the Zacks Rank (Hold). According to the findings of our study, companies that have this combination result in a positive surprise over seventy percent of the time, and a strong Zacks Rank boosts the predictive value of Earnings ESP.

Please consider that a pessimistic Earnings ESP estimate does not always indicate that earnings will be missed. According to the findings of our study, it is difficult to forecast an earnings beat with any significant degree of certainty for firms that have negative Earnings ESP readings and a Zacks Rank of 4 (Sell) or 5. (Strong Sell).

How Have the Numbers Played Out for the Wells Fargo Corporation (WFC stock)?

The fact that the Most Accurate Estimate for Wells Fargo (NYSE:WFC) is higher than the Zacks Consensus Estimate indicates that analysts have lately adopted an optimistic outlook about the company’s earnings prospects. As a consequence of this, the Earnings ESP now stands at +0.10%.

On the other hand, the company’s stock has a Zacks Rank of #3.

Therefore, the sum of these factors suggests that Wells Fargo will very certainly, end up exceeding the consensus EPS projection.

Does Past Performance of Earnings Surprise Offer Any Clues?

When determining their projections for a firm’s future profits, analysts frequently take into account the degree to which a company has historically been able to meet or exceed the consensus predictions for that company. Therefore, it is worthwhile to have a look at the history of the surprise to determine the extent to which it will impact the following number.

It was anticipated that Wells Fargo would announce earnings of $0.77 per share for the most recent quarter. Still, it actually delivered earnings of $0.74, which resulted in a surprise of -3.90%.

The firm has been successful in beating the consensus EPS forecasts three times over the previous four quarters.

Bottom Line

It’s possible that Wells Fargo’s earnings will not be the only factor in determining whether a stock will rise or fall. Even when Wells Fargo’s earnings were better than expected, the stock price of many companies nonetheless goes down because of other variables that dissatisfied investors. In a similar vein, unanticipated catalysts contribute to the growth of a number of equities, even when earnings forecasts are missed.

Increasing one’s prospects of success by betting on stocks that are anticipated to have higher than projected earnings. Because of this, it is essential to verify the Zacks Rank and Earnings ESP of a firm before it releases its quarterly earnings. Make sure to make use of our Earnings ESP Filter so that you can find the finest stocks to buy or sell before they have declared their earnings.

Wells Fargo will likely report results that are higher than expected. However, investors need also to pay attention to other considerations before making any bets on this stock or deciding whether or not to avoid it before Wells Fargo reports its earnings.

Utilize the Zacks Earnings Calendar to ensure you are always up to date on forthcoming earnings releases.