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Number Cruncher

Stock screens for investment ideas from professional investors. Exclusive to subscribers of Globe Unlimited.

Number Cruncher

Company earnings that surprise, but don't delight Add to ...

What are we looking for?

Stocks that have lost profit momentum - and the favour of analysts.

More about today's screen

We'll turn to StarMine again for help on today's screen. StarMine is a Thomson Reuters service that ranks analysts and provides lots of data about earnings estimates.

We'll use the StarMine Indicator, which ranks stocks from 1 to 100 based on three criteria: First, StarMine finds the analysts that have predicted earnings surprises in the past and then sees whether they are projecting more. Second, it looks for recent increases to earnings estimates by analysts for the current quarter and year. Finally, it seeks positive changes in analyst recommendations.

On Wednesday we looked for stocks ranked highly with the indicator. Today let's screen for ones at the bottom of the list (10 or less).

Again, we'll limit the screen to Canadian-listed companies with market caps greater than $250-million and coverage by at least three analysts.

What did we find out?

One column to scrutinize is "Smart Estimate EPS this quarter," which can be compared with the "mean EPS estimate this quarter." The Smart Estimate highlights analysts that have been right about earnings surprises in the past and shows how their current estimate for the quarter is different from the median or consensus number (a lower figure predicts a negative surprise).

Brookfield Renewable Power Fund stands out for its sharp decreases to earnings estimates in the past two months and a Smart Estimate that is much lower than the median or consensus estimate for the next quarter.

More investigation is always good for any stock screen, and this one suggests that perhaps next year could be better for Brookfield Renewable.

Scotia Capital analyst Tony Courtright recently cut his earnings estimates after the hydro generation trust said third-quarter weak water flows in Ontario and Quebec meant that hydro generation was about one-third below long-term averages. The trust also announced plans to convert into a corporation.

Mr. Courtright is now concerned that cash flows at the trust will fall short in coming years and that the fund may have to "raise capital to fund the equity portion of the Comber [wind]project, should [parent Brookfield Renewable Power Inc.]vend it to [the fund]"

Although analysts have cut their estimates for Brookfield Renewable sharply for this year, their estimates for 2011 have come down only slightly as they assume water levels will rebound next year. For instance, Mr. Courtright hasn't changed his recommendation of "sector perform" or his target of $21.

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