Zacks Industry Rank Analysis Highlights: Gardner Denver, Grant Prideco, Jefferies Group, Knight...

CHICAGO -- Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week's analysis include Gardner Denver (NYSE:GDI), Grant Prideco (NYSE:GRP), Jefferies Group (NYSE:JEF), Knight Capital (Nasdaq:NITE) and Steel Dynamics (Nasdaq:STLD). To see the Zacks Industry Rank and the

Zacks Industry Rank Analysis written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.

More than half of the companies within the Zacks Rank universe(a) have reported earnings. The numbers are running roughly inline with the fourth-quarter results. For the first-quarter, the ratio of earnings surprises to misses is 2:1. The ratio of sales surprises to misses(b) is 1.6:1.

The trend in earnings estimates following earnings reports(c) is flat to slightly negative. Analysts have revised forecasts upward on just one more company than they have lowered. The average change(d) in full-year earnings estimates is -0.76%. Nonetheless, analysts are projecting a 21% rise in profits(e).

With reports from over 2600 companies within the Zacks Rank universe, some trends can be derived from the first-quarter results. Corporations continue to be effective at managing expectations. Economic growth, combined with the ability of many companies to pass through higher raw material costs, is aiding profits. Stock selection, however, continues to be of key importance. Only a third of all industry groups have a positive-to-negative estimate revisions ratio(f) above 1.0. This means that despite the bullish headlines, several traps continue to exist for investors who are not selective about their stock choices.

Oil-related groups, in particular, are laden with bull traps. Yes, Texas tea prices were above $70 per barrel last week and gasoline prices are obnoxiously high, but forecasts are not being raised on all oil companies. For instance, analysts have lowered their forecasts on 11 of the 15 companies within the Oil & Gas Exploration & Production group so far.

Conversely, analysts are raising their forecasts on oilfield companies, such as Grant Prideco (NYSE:GRP), a Zacks #1 Rank stock. One of the primary differences between exploration & production and oilfield companies is that disruptions, such as hurricane related damage, create opportunities for oilfield companies. In addition, increased spending on maintenance and rising demand for rigs also benefits oilfield companies.

Other industry groups that standout this earnings season from an estimate revision perspective include Machinery-General Industrial, Steel Producers and Finance-Investment Brokers.

The Machinery-General Industrial group contains six Zacks #1 Rank stocks, all of which have a market capitalization of $3.5 billion or less. Analysts have raised their forecasts on Gardner Denver (NYSE:GDI) and some of its peers by more than 20% within the past two weeks. Companies within this group provide various industrial products, including pumps, valves, motors and controls.

Steel-Producers contains five Zacks #1 Rank stocks, including Steel Dynamics (Nasdaq:STLD). The story here is simple - metal prices across the board are rising. Although, gold has continuously been making the headlines, the trend in estimates has been more favorable for stocks tied to other metals.

Some of the major investment banking firms reported strong first-quarter results in March due to strong merger activity, narrow yield spreads and the ability to float secondary offerings. In late April, firms such as Knight Capital (Nasdaq:NITE) and Jefferies Group (NYSE:JEF) extended the winning streak. NITE benefited from "deeper account penetration" and an increase in trading volume. JEF generated higher trading revenue and growth in its asset management group.

To see the complete listing of the Zacks Sector Rank and Industry Rank scores, go to http://at.zacks.com/?id=2563.

(a)The Zacks Rank is assigned to companies with earnings estimates made available by brokerage analysts. The Zacks' database contains earnings estimates for approximately 4400 companies.

(b)Since sales estimates are not available for all companies, the sample size is smaller. As of last Friday, sales estimates were only available on 2146 of the 2632 companies within the Zacks Rank universe that have reported so far.

(c)Revisions in estimates are tracked for the four-week period following a company's earnings report. The rationale behind the four-week period is to measure analysts' reactions to a company's quarterly report.

(d)To prevent the impact of skewing caused by outliers, this number reflects of average of 90% of the companies of the companies that have reported. When the top and bottom 5% are included, the average change in estimates is -4.7%.

(e)The growth rate is calculated on the groups of Zacks Rank stocks

that have reported first-quarter earnings, excluding outliers. Including the top and bottom 5% causes the average growth rate to jump to 46.4%. There are 15 companies with projected growth rates in excess of 1000%.

(f)The ratio was calculated using the Zacks Medium Industry Codes, which categorizes stocks into one of 60 groups. This categorization was used because it provides a midpoint between the sector and expanded industry categorizations presented in the tables below.

About Zacks Industry Rank and the Zacks Rank

Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 ("Strong Buy") to #5 ("Strong Sell"). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.

For over 18 years, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +33%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129.7% annually (+5.2% vs. +11.9%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.

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The Zacks Rank, and all of its recommendations, is created by Zacks & Co., member NASD. Zacks.com displays the Zacks Rank with permission from Zacks & Co. on its web site for individual investors.

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(a)The Zacks Performance Rank performance is the total return of equal weighted simulated portfolios consisting of those stocks with the indicated Zacks Rank net of fees. Results reflect the reinvestment of dividends and other earnings. Simulated results do not represent actual trading and may not reflect the impact that economic and market factors might have had on decision-making if an adviser were actually managing a client's money.

(b)The S&P 500 Index ("S&P 500") is a well-known, unmanaged index of the prices of 500 large-company common stocks selected by Standard & Poor's. The S&P 500 includes the reinvestment of all dividends, no transaction costs, and represents the gross returns before management fees.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.