When the markets are volatile and the economic environment is shifting, it can be illuminating to observe companies that are surpassing expectations and rewarding investors with above-average price strength. The quarterly earnings reporting season allows investors to see whether the expectations of the majority of analysts have been correct, or whether they need adjustment. This issue’s First Cut examines stocks that reported quarterly earnings surpassing the consensus forecast—a positive earnings surprise—coupled with above-average relative price strength.

The stocks that made this issue’s First Cut list are domestic, exchange-listed companies tracked by at least three analysts that had a significant positive quarterly surprise since the end of March. These companies are also expected by analysts to have positive earnings for their current fiscal quarter and year, and analysts have raised their near-term quarterly or annual earnings estimate during the past month.

To filter for price strength, companies were required to have a relative price strength rank of 50% or higher over the last four-, 13-, 26- and 52-week periods. Twenty-four stocks made the First Cut, with the passing companies ranked by 13-week relative price strength. The 52-week relative strength rank in the table provides a longer-term price performance perspective. The forward price-earnings ratio (price divided by expected earnings per share) provides a feel for the stocks’ valuation levels.

While positive earnings surprises normally have an immediate impact on stock prices, it is not uncommon for the impact of the surprise to be felt for up to one year. Firms with significant quarterly earnings surprises often have earnings surprises in subsequent quarters. 

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