HNI (HNI) could be a smart choice for investors considering its recent upgrade to Zacks Rank #1 (Strong Buy). This upgrade primarily reflects an upward trend in earnings estimates, which is one of the most powerful forces impacting stock prices.
The sole determinant of the Zacks rating is a company’s earnings performance. The Zacks Consensus (the consensus of EPS estimates from the sell-side analysts covering the stock) for the current and following years is followed by the system.
The power of earnings trends on near-term stock price movements makes the Zacks rating system very useful for individual investors, since it can be difficult to make decisions based on rating revisions from Wall Street analysts. These are mostly driven by subjective factors that are hard to see and measure in real-time.
As such, the Zacks rating upgrade for HNI is essentially a positive comment on its earnings outlook that could have a favorable impact on its stock price.
The most powerful force influencing stock prices
There is evidence that 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 highly correlated. This is partly due to the influence of institutional investors who use earnings and earnings estimates to calculate the fair value of a company’s stock. An increase or decrease in earnings estimates in their valuation models simply translates into a higher or lower fair value of a stock, and institutional investors typically buy or sell a stock. Their transactions of large quantities of shares then cause the stock price to move.
Fundamentally, the rise in earnings estimates and the subsequent upgrade in HNI’s rating imply an improvement in the company’s underlying business. Investors should show their appreciation for this improving business trend by pushing 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. Therefore, tracking such revisions can be very informative when making an investment decision. This is where the proven 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 outside-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 >>>>.
HNI Earnings Estimates Revised
For the fiscal year ending December 2024, the office furniture and fireplace maker is expected to earn $3.10 per share, a change of 17% from the figure reported a year ago.
Analysts have been steadily revising their estimates for HNI upwards. Over the past three months, the Zacks Consensus Estimate for the company has increased by 5.8%.
Conclusion
Unlike overly optimistic Wall Street analysts, whose rating systems tend to favor favorable recommendations, the Zacks rating system maintains an equal proportion of “buy” and “sell” ratings for its entire universe of over 4,000 stocks at any given time. Regardless of market conditions, only the top 5% of stocks covered by Zacks earn a “Strong Buy” rating, and the next 15% earn a “Buy” rating. Thus, a stock’s placement in the top 20% of Zacks coverage indicates its superior earnings estimate revision capability, making it a strong candidate to outperform the market in the near term.
You can learn more about the Zacks Rank here >>>
HNI’s upgrade to a Zacks Rank #1 puts it in the top 5% of stocks covered by Zacks in terms of estimate revisions, implying that the stock could move higher in the near term.
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HNI Corporation (HNI) : Free Stock Analysis Report