Dana Incorporated (DAN) has become a compelling investment option after being upgraded to a Zacks Rank #2 (Buy). This upgrade is a direct reflection of the positive momentum in earnings estimates, a fundamental force that significantly impacts stock prices. The Zacks rating system, unlike subjective analyst opinions, relies solely on a company’s evolving earnings picture. It meticulously tracks earnings per share (EPS) estimates from analysts covering the stock, culminating in the Zacks Consensus Estimate. The power of changing earnings projections in shaping near-term stock price movements makes the Zacks system invaluable for individual investors. It provides a clear and objective measure of a company’s earnings potential, simplifying investment decisions.
The recent Zacks Rank upgrade for Dana essentially signifies an optimistic outlook on its earnings, suggesting a favorable impact on its stock price. Changes in a company’s future earnings potential, reflected in earnings estimate revisions, have a strong correlation with the near-term movement of its stock. This correlation stems from the influence of institutional investors who utilize earnings and earnings estimates to calculate a company’s fair value. Higher or lower earnings estimates in their valuation models translate directly to higher or lower fair values for a stock, prompting institutional investors to buy or sell. Their large-scale investment actions subsequently drive stock price movements.
Fundamentally, the rising earnings estimates and subsequent Zacks Rank upgrade for Dana indicate an improvement in the company’s underlying business operations. Investors should acknowledge this positive trend by supporting the stock’s upward movement. Empirical research consistently highlights a strong correlation between trends in earnings estimate revisions and near-term stock movements. Tracking these revisions can be incredibly beneficial for making informed investment decisions. This is where the tried-and-tested Zacks Rank stock-rating system excels, leveraging the power of earnings estimate revisions to its advantage.
The Zacks Rank system classifies stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), based on four factors related to earnings estimates. With an impressive externally-audited track record, Zacks Rank #1 stocks have generated an average annual return of +25% since 1988. For the fiscal year ending December 2024, Dana, an automotive equipment supplier, is projected to earn $0.98 per share, representing a 16.7% change from the previous year’s reported number. Analysts have consistently raised their estimates for Dana, with the Zacks Consensus Estimate increasing by 34.2% over the past three months.
Unlike Wall Street analysts, whose rating systems often lean towards favorable recommendations, the Zacks rating system maintains a balanced proportion of ‘buy’ and ‘sell’ ratings for its entire universe of over 4000 stocks. Regardless of market conditions, only the top 5% of the Zacks-covered stocks receive a ‘Strong Buy’ rating, followed by the next 15% receiving a ‘Buy’ rating. Placing a stock within the top 20% of Zacks-covered stocks signifies superior earnings estimate revision characteristics, making it a strong contender for delivering market-beating returns in the near term.
Dana’s upgrade to a Zacks Rank #2 elevates it to the top 20% of the Zacks-covered stocks in terms of estimate revisions, implying potential for near-term stock appreciation.
