Earnings Surprises: Short-Sellers Think These Stocks Have More Upside

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Are you looking for companies with bullish sentiment and a history of beating analyst estimates? If so, you may be interested in this list.

Companies report an "earnings surprise" when they release quarterly earnings that beat or miss analyst estimates. If a company consistently beats their analyst estimates, it may indicate that the company is persistently being underestimated by the market.

To be clear, earnings typically refer to after-tax net income.

Whenever a company releases earnings data that beats analyst expectations, the stock will often rise in value to price in the good news. Negative earnings surprises usually lead to a drop in share price.

Of course, analysts cannot perfectly predict the future, so individual earning expectations could be far off the mark -- this is why average analyst estimates are used to determine "surprises."

A few investing ideas
Interested in exploring companies that have a track record of beating analyst estimates?

For ideas, we started with a universe of about 170 stocks that have a history of beating analyst earnings estimates.

From this universe, we collected data on short seller trends, and identified the names that have seen a significant decrease in shares shorted over the last month (i.e., short-sellers have reduced bearish bets).

Short-sellers appear to think the upside potential of these names outweighs the downside. Considering the track record of these stocks relative to analyst earnings estimates, do you agree?

List sorted by average earnings surprise. (Click here to access free, interactive tools to analyze these ideas.)

1. SodaStream International (NAS: SODA) : Engages in the development, manufacture, and marketing of home beverage carbonation systems and related products. In Dec. 2010: Reported EPS at 0.25 vs. estimate at 0.1 (surprise of 150%). In March 2011: Reported EPS at 0.27 vs. estimate at 0.15 (surprise of 80%). In June 2011: Reported EPS at 0.29 vs. estimate at 0.22 (surprise of 31.8%). In Sept. 2011: Reported 0.42 vs. estimate at 0.25 (surprise of 68%. [Average earnings surprise at 82.45%].

Shares shorted have decreased from 7.48M to 7.07M over the last month, a decrease which represents about 2.75% of the company's float of 14.92M shares.

2. Zumiez (NAS: ZUMZ) : Zumiez, founded in 1978, is a mall-based specialty retailer providing sports-related apparel, footwear, equipment, and accessories. In Jan. 2011: Reported EPS at 0.49 vs. estimate at 0.48 (surprise of 2.1%). In Apr. 2011: Reported EPS at 0.06 vs. estimate at 0.02 (surprise of 200%). In July 2011: Reported EPS at 0.08 vs. estimate at 0.05 (surprise of 60%). In Oct. 2011: Reported 0.45 vs. estimate at 0.42 (surprise of 7.1%. [Average earnings surprise at 67.3%].

Shares shorted have decreased from 5.40M to 5.03M over the last month, a decrease which represents about 1.7% of the company's float of 21.80M shares.

3. Genesco (NYS: GCO) : Operates Journeys, Journeys Kidz, and Shi by Journeys stores that offer footwear for young men, women, and children. In Jan. 2011: Reported EPS at 1.33 vs. estimate at 1.29 (surprise of 3.1%). In Apr. 2011: Reported EPS at 0.67 vs. estimate at 0.48 (surprise of 39.6%). In July 2011: Reported EPS at 0.22 vs. estimate at 0.1 (surprise of 120%). In Oct. 2011: Reported 1.21 vs. estimate at 0.96 (surprise of 26%. [Average earnings surprise at 47.18%].

Shares shorted have decreased from 2.47M to 2.21M over the last month, a decrease which represents about 1.12% of the company's float of 23.21M shares.

4. Saks (NYS: SKS) : Operates fashion retail stores in the United States. In Jan 2011: Reported EPS at 0.13 vs. estimate at 0.08 (surprise of 62.5%). In Apr. 2011: Reported EPS at 0.17 vs. estimate at 0.16 (surprise of 6.3%). In July 2011: Reported EPS at -0.05 vs. estimate at -0.09 (surprise of 44.4%). In Oct. 2011: Reported 0.11 vs. estimate at 0.09 (surprise of 22.2%. [Average earnings surprise at 33.85%]. Shares shorted have decreased from 34.51M to 32.88M over the last month, a decrease which represents about 1.6% of the company's float of 101.62M shares.

5. Hi Tech Pharmacal (NAS: HITK) : Develops, manufactures, markets, and sells generic, prescription, over-the-counter (OTC), and nutritional products in liquid and semisolid dosage forms in the United States. In Jan. 2011: Reported EPS at 0.79 vs. estimate at 0.63 (surprise of 25.4%). In Apr. 2011: Reported EPS at 0.98 vs. estimate at 0.71 (surprise of 38%). In July 2011: Reported EPS at 1.05 vs. estimate at 0.84 (surprise of 25%). In Oct. 2011: Reported 1.04 vs. estimate at 0.77 (surprise of 35.1%. [Average earnings surprise at 30.87%].

Shares shorted have decreased from 1.58M to 1.44M over the last month, a decrease which represents about 1.37% of the company's float of 10.19M shares.

6. Cninsure (NAS: CISG) : Provides insurance brokerage and agency services, and insurance claims adjusting services in the People's Republic of China. In Dec. 2010: Reported EPS at 0.37 vs. estimate at 0.34 (surprise of 8.8%). In March 2011: Reported EPS at 0.24 vs. estimate at 0.23 (surprise of 4.3%). In June 2011: Reported EPS at 0.33 vs. estimate at 0.29 (surprise of 13.8%). In Sept. 2011: Reported 0.33 vs. estimate at 0.18 (surprise of 83.3%. [Average earnings surprise at 27.55%].

Shares shorted have decreased from 6.04M to 4.58M over the last month, a decrease which represents about 5.52% of the company's float of 26.47M shares.

7. OmniVision Technologies (NAS: OVTI) : Designs, develops, and markets semiconductor image-sensor devices. In Jan. 2011: Reported EPS at 0.84 vs. estimate at 0.58 (surprise of 44.8%). In Apr. 2011: Reported EPS at 0.66 vs. estimate at 0.65 (surprise of 1.5%). In July 2011: Reported EPS at 0.76 vs. estimate at 0.71 (surprise of 7%). In Oct. 2011: Reported 0.48 vs. estimate at 0.32 (surprise of 50%. [Average earnings surprise at 25.82%].

Shares shorted have decreased from 5.56M to 4.05M over the last month, a decrease which represents about 2.77% of the company's float of 54.49M shares.

8. W&T Offshore (NYS: WTI) : Engages in the acquisition, exploitation, exploration, and development of oil and natural gas properties primarily in the Gulf of Mexico. In Dec. 2010: Reported EPS at 0.4 vs. estimate at 0.36 (surprise of 11.1%). In March 2011: Reported EPS at 0.43 vs. estimate at 0.31 (surprise of 38.7%). In June 2011: Reported EPS at 0.71 vs. estimate at 0.49 (surprise of 44.9%). In Sept. 2011: Reported 0.56 vs. estimate at 0.52 (surprise of 7.7%. [Average earnings surprise at 25.6%].

Shares shorted have decreased from 6.05M to 5.68M over the last month, a decrease which represents about 1.08% of the company's float of 34.39M shares.

9. Isoftstone Holdings (NYS: ISS) : Provides various information technology (IT) services and solutions in the Greater China and internationally. In Dec. 2010: Reported EPS at 0.2 vs. estimate at 0.14 (surprise of 42.9%). In March 2011: Reported EPS at 0.1 vs. estimate at 0.08 (surprise of 25%). In June 2011: Reported EPS at 0.13 vs. estimate at 0.12 (surprise of 8.3%). In Sept. 2011: Reported 0.15 vs. estimate at 0.14 (surprise of 7.1%. [Average earnings surprise at 20.82%].

Shares shorted have decreased from 3.71M to 3.33M over the last month, a decrease which represents about 1.28% of the company's float of 29.61M shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


List compiled by Eben Esterhuizen, CFA. Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Earnings surprise and short data sourced from Yahoo! Finance.

At the time this article was published Motley Fool newsletter services have recommended buying shares of SodaStream International, W&T Offshore, and Zumiez. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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