December 5, 2020

ABG

Investors might want to bet on Asbury Automotive Group (ABG), as it has been recently upgraded to a Zacks Rank #1 (Strong Buy). An upward trend in earnings estimates — one of the most powerful forces impacting stock prices — has triggered this rating change.

A company’s changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate — the consensus measure of EPS estimates from the sell-side analysts covering the stock — for the current and following years.

Individual investors often find it hard to make decisions based on rating upgrades by Wall Street analysts, since these are mostly driven by subjective factors that are hard to see and measure in real time. In these situations, the Zacks rating system comes in handy because of the power of a changing earnings picture in determining near-term stock price movements.

Therefore, the Zacks rating upgrade for Asbury Automotive basically reflects positivity about its earnings outlook that could translate into buying pressure and an increase in its stock price.

Most Powerful Force Impacting Stock Prices

The change in a company’s future earnings potential, as reflected in earnings estimate revisions, and the near-term price movement of its stock are proven to be strongly correlated. The influence of institutional investors has a partial contribution to this relationship, as these big professionals use earnings and earnings estimates to calculate the fair value of a company’s shares. An increase or decrease in earnings estimates in their valuation models simply results in higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their bulk investment action then leads to price movement for the stock.

For Asbury Automotive, rising earnings estimates and the consequent rating upgrade fundamentally mean an improvement in the company’s underlying business. And investors’ appreciation of this improving business trend should push the stock higher.

Harnessing the Power of Earnings Estimate Revisions

Empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock movements, so it could be truly rewarding if such revisions are tracked for making an investment decision. Here is where the tried-and-tested Zacks Rank stock-rating system plays an important role, as it effectively harnesses the power of earnings estimate revisions.

The Zacks Rank stock-rating system, which uses four factors related to earnings estimates to classify stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here >>>>.

Earnings Estimate Revisions for Asbury Automotive

For the fiscal year ending December 2020, this auto dealership chain is expected to earn $12.42 per share, which is a change of 31.3% from the year-ago reported number.

Analysts have been steadily raising their estimates for Asbury Automotive. Over the past three months, the Zacks Consensus Estimate for the

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Growth stocks can be some of the most exciting picks in the market, as these high-flyers can captivate investors’ attention, and produce big gains as well. However, they can also lead on the downside when the growth story is over, so it is important to find companies which are still seeing strong growth prospects in their businesses.

One such company that might be well-positioned for future earnings growth is Asbury Automotive Group, Inc. ABG. This firm, which is in the (insert industry name) industry, saw EPS growth of 12.5% last year, and is looking great for this year too.

In fact, the current growth estimate for this year calls for earnings-per-share growth of 31.2%. Furthermore, the long-term growth rate is currently an impressive 18.5%, suggesting pretty good prospects for the long haul.

Asbury Automotive Group, Inc. Price and Consensus

Asbury Automotive Group, Inc. Price and Consensus

Asbury Automotive Group, Inc. price-consensus-chart | Asbury Automotive Group, Inc. Quote

And if this wasn’t enough, the stock has actually seen estimates rise over the past month for the current fiscal year by about 16.8%. Thanks to this rise in earnings estimates, ABG has a Zacks Rank #2 (Buy) which further underscores the potential for outperformance in this company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

So if you are looking for a fast growing stock that is still seeing plenty of opportunities on the horizon, make sure to consider ABG. Not only does it have double-digit earnings growth prospects, but its impressive Zacks Rank suggests that analysts believe better days are ahead for ABG as well.

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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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