The GEARS Covestor model, Earnings Surprise, puts its focus on companies that are likely to deliver an earnings number that serves as a pleasant surprise to investors. Positions for the model are chosen by financial statement analysis during which the manager looks for low corporate costs, rising sales growth, increasing growth profit margin and other earnings indicators.
NBTY Inc (NYSE:NTY), a vitamin and supplement manufacturer, developer and seller, is one of the top holdings in the Earnings Surprise model. For the past three years, NTY has shown an increasing growth in gross profit and net revenues on its income statement despite growing operating expenses. In July, they shared their third quarter results and showed a 7% increase in sales which was greater than their numbers during the third quarter of 2009. Their net income was also increased.
Another top holding is Veeco Instruments Inc (NASDAQ:VECO). According to their website, VECO is a full-service engineering, consulting, operation, and construction company with a wide range of services and businesses served. Their total revenue has fallen steadily over the past three years and their gross profit fell in 2009. Their operating expenses have fallen with their net revenues.
Finally, let’s take a look at a third top holding, La-Z-Boy Inc (NYSE: LZB). LZB has been creating and selling furniture since 1928. They’ve done a good job in modernizing their furniture while designing each piece to be as comfortable as the La-Z-Boy name suggests. LZB’s net revenues fell in 2008 and again in 2009 but in 2010 they held steady. If you look at the 2010 fiscal year by quarter, you can see their net revenues increasing consistently over each quarter. Their gross income increased in 2010 while their operating expenses fell. In their 2010 annual report (which you can read here) they mention that their operating performance outpaced that of their peers.
