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Can Ritchie Bros. (RBA) Run Higher on Rising Earnings Estimates?

Zacks Equity Research

Ritchie Bros. (RBA) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.

The upward trend in estimate revisions for this heavy equipment auctioneer reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

Consensus earnings estimates for the next quarter and full year have moved considerably higher for Ritchie Bros. As there has been strong agreement among the covering analysts in raising estimates.

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The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

For the current quarter, the company is expected to earn $0.21 per share, which is a change of +16.67% from the year-ago reported number.

The Zacks Consensus Estimate for Ritchie Bros. has increased 6.31% over the last 30 days, as five estimates have gone higher while one has gone lower.

Current-Year Estimate Revisions

The company is expected to earn $1.26 per share for the full year, which represents a change of +16.67% from the prior-year number.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Ritchie Bros. Over the past month, eight estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 5.24%.

Favorable Zacks Rank

The promising estimate revisions have helped Ritchie Bros. earn a Zacks Rank #2 (Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on Ritchie Bros. because of its solid estimate revisions, as evident from the stock's 10.9% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.


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Zacks Investment Research