Redwood Trust (RWT) could be a solid choice for investors given the company's remarkably improving earnings outlook. While the stock has been a strong performer lately, this trend might continue since analysts are 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 specialty finance company, 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. Our stock rating tool -- the Zacks Rank -- is principally built on this insight.
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 Redwood Trust, as there has been strong agreement among the covering analysts in raising estimates.
Current-Quarter Estimate Revisions
The company is expected to earn $0.20 per share for the current quarter, which represents a year-over-year change of +53.85%.
The Zacks Consensus Estimate for Redwood Trust has increased 9.59% over the last 30 days, as one estimate has gone higher compared to no negative revisions.
Current-Year Estimate Revisions
For the full year, the company is expected to earn $0.82 per share, representing a year-over-year change of +57.69%.
There has been an encouraging trend in estimate revisions for the current year as well. Over the past month, one estimate has moved up for Redwood Trust versus no negative revisions. This has pushed the consensus estimate 9.78% higher.
Favorable Zacks Rank
The promising estimate revisions have helped Redwood Trust earn 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
Redwood Trust shares have added 10.1% over the past four weeks, suggesting that investors are betting on its impressive estimate revisions. So, you may consider adding it to your portfolio right away to benefit from its earnings growth prospects.
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Redwood Trust, Inc. (RWT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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