Solution introduction

A basic tenant of Investment theory is that since a company's current value is equal to the discounted value of its future earnings, changes in a company's expected future earnings should directly translate into changes in the company's stock price

In 1982 Zacks developed a model ( the Zacks Indicator ) that predicted future revisions of brokerage analyst EPS estimates using historical patterns in the brokerage analyst EPS estimates

This was the first "Estimate Revision" model. Over the years since 1982 the Zacks Indicator model has been reformulated a number of times and has proven itself to be perhaps the most effective technique available to professional investors for predicting price changes over a 3 to 6 month horizon.

Performance
From 1988 through December 2015 , the portfolio consisting of the top 5% of the companies selected by the Zacks Indicator delivered an Annualized Return of 25.6%, compared to 10.3% return for the S&P 500, 10.6% return for the equal weighted universe and 1.0% return for the portfolio of the bottom 5%. These returns are not the result of backtests but are the returns Zacks clients could have achieved (excluding transaction costs) had they followed the recommendations of the Zacks Indicator as it was delivered to them by Zacks since 1988. The top 5% returns cover a period from 1988 through 2015 and were examined and attested to by Baker Tilly Virchow Krause, LLP, an independent accounting firm.

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