A Strong Buy with Positive Earnings Outlook
Bunzl PLC (BZLFY) has recently been upgraded to a Zacks Rank #2 (Buy), indicating a positive outlook for the company's earnings and potential stock price increase. This upgrade reflects an upward trend in earnings estimates, which is a powerful force influencing stock prices.
The Zacks rating system focuses solely on a company's changing earnings picture. It tracks the Zacks Consensus Estimate, which is the consensus of EPS estimates from analysts covering the stock, for the current and following years. This system is particularly useful for individual investors, as it can be difficult to interpret rating upgrades from Wall Street analysts, which are often driven by subjective factors.
The Zacks rating upgrade for Bunzl reflects optimism about its earnings outlook, which could translate into buying pressure and an increase in its stock price. This optimism is based on the strong correlation between changes in a company's future earnings potential and its near-term stock price movement. Institutional investors play a role in this relationship, as they use earnings and earnings estimates to calculate the fair value of a company's shares. Changes in these estimates lead to adjustments in their valuation models, resulting in buying or selling activity that influences the stock price.
Furthermore, rising earnings estimates and the consequent rating upgrade for Bunzl imply an improvement in the company's underlying business. This positive trend is likely to be appreciated by investors, potentially pushing the stock price higher.
Empirical research supports the strong correlation between trends in earnings estimate revisions and near-term stock movements. The Zacks Rank stock-rating system effectively harnesses the power of these revisions, using four factors related to earnings estimates to classify stocks into five groups. The system has an impressive track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988.
Bunzl is expected to earn $2.47 per share for the fiscal year ending December 2024, representing a year-over-year change of 3.8%. Analysts have been steadily raising their estimates for the company, with the Zacks Consensus Estimate increasing by 4.8% over the past three months.
The Zacks rating system maintains an equal proportion of 'buy' and 'sell' ratings for its entire universe of over 4000 stocks. Only the top 5% of Zacks-covered stocks receive a 'Strong Buy' rating, and the next 15% receive a 'Buy' rating. This ensures that only companies with truly superior earnings estimate revisions are placed in the top 20%, making them strong candidates for market-beating returns.
The upgrade of Bunzl to a Zacks Rank #2 positions it in the top 20% of Zacks-covered stocks in terms of estimate revisions, suggesting a potential for near-term price appreciation.