Investors may want to bet on Workday (WDAY) as it was recently upgraded to a Zacks Rank #2 (Buy). This upgrade primarily reflects an upward trend in earnings estimates, which is one of the most powerful forces impacting stock prices.

The Zacks rating is based solely on a company’s changing financial performance. It tracks current-year and following year EPS estimates from the sell-side analysts who cover the stock using a consensus measure – the Zacks Consensus Estimate.

Retail investors often find it difficult to make decisions based on rating upgrades by Wall Street analysts because these are usually based on subjective factors that are difficult to identify and measure in real time. In such situations, the Zacks rating system comes in handy as a changing earnings picture plays a big role in determining near-term stock price movements.

Therefore, the Zacks rating upgrade for Workday is essentially a positive comment on the company’s earnings outlook, which could have a positive impact on its stock price.

The change in a company’s future earnings potential, as reflected in earnings estimate revisions, and the near-term price movement of its stock have been proven to be closely correlated. The influence of institutional investors contributes in part to this relationship, as these major professionals use earnings and earnings estimates to calculate the fair value of a company’s shares. An increase or decrease in earnings estimates in their valuation models simply results in a higher or lower fair value of a stock, and institutional investors typically buy or sell it. Your transaction of large amounts of shares then results in price movements for the stock.

For Workday, rising earnings estimates and the associated rating upgrade fundamentally represent an improvement in the company’s underlying business. And investors’ appreciation for this improving business trend should drive the stock higher.

Since empirical research shows a strong connection between trends in earnings estimate revisions and near-term stock movements, it might be well worth tracking such revisions when making investment decisions. This is where the proven Zacks Rank stock rating system plays an important role as it effectively harnesses the power of earnings estimate revisions.

The Zacks Rank stock rating system, which uses four factors related to earnings estimates to classify stocks into five groups ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), has a impressive, outside-audited record track record, with Zacks Rank #1 stocks generating an average annual return of +25% since 1988. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks. Share here >>>>.

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