Limbach LMB (LMB) has caught the attention of investors with its recent upgrade to a Zacks Rank #1 (Strong Buy). This upgrade is not a random occurrence; it reflects a significant trend in earnings estimates – a driving force behind stock price movements.
The Zacks Rank system is built upon the premise that a company’s changing earnings picture is the most reliable indicator of its future performance. It tracks the Zacks Consensus Estimate, a compilation of earnings estimates from analysts covering the stock, for both the current and upcoming years. This system proves particularly valuable for individual investors, as it provides a clear and objective measure of a company’s earnings potential, unlike subjective analyst ratings that can be difficult to interpret.
The upgrade for Limbach signifies a positive shift in its earnings outlook. This positive sentiment is likely to translate into increased buying pressure, potentially leading to a rise in the stock’s price.
The Power of Earnings Estimates
Research consistently demonstrates a strong correlation between changes in a company’s future earnings potential (as reflected in earnings estimate revisions) and the short-term movements of its stock price. This connection is partially influenced by institutional investors, who rely on earnings and earnings estimates to calculate a company’s fair value. When earnings estimates rise, they perceive the stock as more valuable and are likely to buy, driving the price up. Conversely, declining estimates lead to lower valuations and potential selling.
Fundamentally, the upward revision of earnings estimates for Limbach points to an improvement in the company’s underlying business. This positive trend warrants investor attention and could lead to an increase in the stock’s price.
Harnessing the Power of Earnings Estimates
The Zacks Rank system, with its proven track record of identifying stocks with strong earning potential, effectively capitalizes on the power of earnings estimate revisions. It categorizes stocks into five groups, from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), based on four key factors related to earnings estimates. Since 1988, Zacks Rank #1 stocks have achieved an impressive average annual return of +25%.
Earnings Estimate Revisions for Limbach
Analysts anticipate Limbach to earn $2.43 per share for the fiscal year ending December 2024, representing a year-over-year growth of 38.1%. Notably, analysts have consistently raised their estimates for Limbach over the past three months, with the Zacks Consensus Estimate increasing by 8%.
A Reliable Alternative to Wall Street Analysts
Unlike Wall Street analysts, who may exhibit biases towards positive recommendations, the Zacks Rank system maintains a balanced approach, assigning an equal proportion of ‘buy’ and ‘sell’ ratings across its universe of over 4,000 stocks. Regardless of market conditions, only the top 5% of Zacks-covered stocks receive a ‘Strong Buy’ rating, with the next 15% classified as ‘Buy’. This strict methodology ensures that a stock’s placement within the top 20% signifies superior earnings estimate revisions, making it a compelling candidate for outperforming the market in the near term.
Limbach’s upgrade to a Zacks Rank #1 positions it among the top 5% of Zacks-covered stocks in terms of estimate revisions. This positive outlook suggests the potential for the stock to rise in the near future.
