Investors may want to bet on RLI Corp. (RLI), as it was recently upgraded to Zacks Rank #2 (Buy). This update is essentially a reflection of an upward trend in earnings estimates — one of the most powerful forces affecting stock prices.
The sole determinant of the Zacks estimate is a company’s changing earnings picture. The Zacks Consensus Estimate — the consensus EPS estimates of the sell-side analysts covering the stock — for the current and next years is tracked by the system.
Since a changing earnings picture is a powerful factor affecting short-term stock prices, the Zacks Ratings system is very useful for individual investors. They may find it difficult to make decisions based on rating updates from Wall Street analysts, as these are mostly driven by subjective factors that are difficult to see and measure in real time.
As such, the Zacks rating upgrade for RLI Corp. is essentially a positive comment on its earnings outlook, which could have a favorable impact on its share price.
Most Powerful Force Effective Stock Prices
The change in a company’s future earnings potential, as reflected in earnings estimate revisions, and the short-term price movement of its stock have been shown to be strongly correlated. That’s partly due to the influence of institutional investors, who use revenue 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 results in a higher or lower fair value for a stock, and institutional investors typically buy or sell it. Their wholesale investment action then leads to price movement for the stock.
For RLI Corp., rising earnings estimates and the subsequent rating upgrade essentially mean an improvement in the company’s underlying business. And investors’ appreciation of this improving business trend should push the stock higher.
Harnessing the Power of Income Assessment Revisions
Empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock movements, so it could be really rewarding if such revisions are tracked to make an investment decision. This is where Zacks Rank’s proven stock rating system plays an important role, as it effectively harnesses the power of earnings rating revisions.
The Zacks Rank stock-rating system, which uses four factors tied 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 externally-audited track record. 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 >>>>.
Earnings Estimates Revisions for RLI Corp.
This specialty insurance company is expected to earn $4.80 per share for the fiscal year ending December 2023, which represents a year-over-year change of 2.4%.
Analysts have consistently raised their estimates for RLI Corp. Over the past three months, the Zacks Consensus Estimate for the company has increased 10.4%.
Bottom Line
Unlike the overly optimistic Wall Street analysts, whose rating systems tend to be weighted toward favorable recommendations, the Zacks rating system maintains an equal proportion of “buy” and “sell” ratings for its entire universe of more than 4,000 stocks at any given time. Regardless of market conditions, only the top 5% of the Zacks-covered stocks receive a ‘Strong Buy’ rating and the next 15% receive a ‘Buy’ rating. So, a stock’s placement in the top 20% of the Zacks-covered stocks indicates its superior earnings estimate review function, making it a solid candidate to produce market returns in the near term.
You can learn more about the Zacks Rank here >>>
The update of RLI Corp. to Zacks Rank #2 places it in the top 20% of the Zacks-covered stocks based on rating revisions, implying that the stock may move higher in the near term.
5 Shares Set to Double
Each was selected by Zacks expert as the #1 favorite stock to gain +100% or more in 2023. Previous recommendations soared +143.0%, +175.9%, +498.3% and +673.0% .
Most of the stocks in this report fly under the Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
RLI Corp. (RLI): Free Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.