Wall Street expects lower year-over-year earnings on higher revenue when Brinker International (EAT) reports results for the quarter ending December 2022. While this widely known consensus outlook is important for To assess 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, which is expected to be released on February 1, 2023, 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 the sustainability of the immediate price move and future earnings forecast 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 operator of Chili’s Grill & Bar and Maggiano’s Little Italy restaurant chains is expected to post quarterly earnings of $0.50 per share in its next report, representing a year-over-year change of -29.6% .

Revenue is expected to be $987.59 million, up 6.7% from the prior year quarter.

Trend of estimate revisions

The consensus EPS estimate for the quarter has been revised down 0.28% 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 the 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 have the numbers changed for Brinker International?

For Brinker International, 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 +2.82%.

On the other hand, the stock currently carries a Zacks rank of #5.

Thus, this combination makes it difficult to conclusively predict that Brinker International will exceed the consensus EPS 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, Brinker International was expected to post a loss of $0.60 per share when it actually produced a loss of $0.57, delivering a +5% surprise.

In the past four quarters, the company has beaten consensus EPS estimates twice.

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 it’s quarterly release. Be sure to use our earnings ESP filter to discover the best stocks to buy or sell before they are released.

Brinker International doesn’t seem like a compelling contender when it comes to earnings. However, investors should also pay attention to other factors to bet on this stock or walk away from it before its results are released.

Results expected from an industry player

McDonald’s (MCD), another stock in the Zacks Retail – Restaurants sector, is expected to post earnings per share of $2.45 for the quarter ending December 2022. This estimate indicates a year-over-year change of +9 .9%. Revenue for the quarter is expected to be $5.71 billion, down 4.9% from the prior year quarter.

The consensus EPS estimate for McDonald’s has been revised up 1.8% in the past 30 days from the current level. However, a lower most accurate estimate resulted in an ESP of -0.59%.

This ESP of earnings, combined with its No. 2 (buy) Zacks ranking, makes it difficult to conclusively predict that McDonald’s will exceed the consensus estimate for EPS. In the past four quarters, the company has exceeded consensus EPS estimates three times.

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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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