Surging Earnings Estimates Signal Upside for Victoria's Secret (VSCO) Stock

Victoria's Secret (VSCO) 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 rising trend in estimate revisions, which is a result of growing analyst optimism on the earnings prospects of this retailer of lingerie, pajamas and beauty products, 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. This insight is at the core of our stock rating tool -- the Zacks Rank.

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 Victoria's Secret, as there has been strong agreement among the covering analysts in raising estimates.

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 $2.42 per share, which is a change of -6.9% from the year-ago reported number.

Over the last 30 days, the Zacks Consensus Estimate for Victoria's Secret has increased 9.61% because two estimates have moved higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the company is expected to earn $2.53 per share, representing a year-over-year change of -6.0%.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for Victoria's Secret. Over the past month, four estimates have moved higher compared to no negative revisions, helping the consensus estimate increase 28.66%.

Favorable Zacks Rank

Thanks to promising estimate revisions, Victoria's Secret currently carries a Zacks Rank #1 (Strong 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 Victoria's Secret because of its solid estimate revisions, as evident from the stock's 47% 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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This article originally published on Zacks Investment Research (zacks.com).

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