Earnings revision tends to be infrequent, but a strong signal for confidence in the near-term performance of public companies, as investment analysts tend to be more conservative in their assumptions and only revise earnings upward when there is solid evidence for that conclusion. There are a few catalysts that could make analysts revise companies’ expected earnings.

For example, 1) companies could start to reap the benefits of cost control initiatives that have been taking place in previous years or 2) an acceleration of topline growth due to the new product pipelines that could start to generate incremental revenue. Alternatively, 3) a merger and acquisition (M&A) that has been integrated better than expected in terms of cost and revenue synergies. These catalysts are especially powerful with some highly leveraged companies as their higher degree of fixed costs (depreciation, interest expense, stock-based compensation, etc.) compared to peers allows for quicker scaling. As a result, any improvement to either the topline or expense items could meaningfully expand the bottom line. Lastly, the improvement in the companies’ fundamentals could also lead to the potential for the market to re-rate their valuation multiples, given a solid track record is being built.

Overall, when analysts make an upward revision on companies with positive reflection in earnings in the near term, it is worth while for investors to dig deeper into the stories. Although some of these improvements are already priced into the current share price to some degree. The magnitude of outperformance is quite hard to predict. Therefore, a better-than-expected acceleration in Earnings Per Share (EPS) can have positive impacts on companies’ share price performance over the next three to five years.

Below we have screened for companies with the following criteria:

• Market cap larger than $100 million
• An upward revision in estimated average revenue growth in the next two years of at least 10%
• An upward revision in estimated EPS growth in the next two years of at least 10%

Here is the screener:

The criteria for the screen are quite simple, as we screen companies that are over $100 million since these companies have had decent operating track records for investors to evaluate, and their trading volume is meaningful enough for investors to acquire a decent position in their portfolio. Secondly, we look for companies that have a significant upward adjustment of at least a 10% improvement in EPS and revenue estimate from analysts, because we think this is a meaningful revision which could potentially offer interesting opportunities for investors.

The screener came up with 14 names - members will recognize some of the names that we cover in our Model Portfolios and coverage lists, such as Wheaton Precious Metals Corp. (WPM) and Capital Power Corporation (CPX).

Again, these companies on the list are not recommendations but a starting point that helps investors to generate potential investment ideas and strategies. Investors can view our previous screener blog here.

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Disclosure: The analyst(s) responsible for this report do not have a financial or other interest in the securities mentioned.