Wall Street watches a company’s quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it’s no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP, or Expected Surprise Prediction, aims to find earnings surprises by focusing on the most recent analyst revisions. The basic premise is that if an analyst reevaluates their earnings estimate ahead of an earnings release, it means they likely have new information that could possibly be more accurate.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 28.3% annual returns on average, according to our 10 year backtest.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), or the top 15% and top 5% of stocks, respectively, should outperform the market; Strong Buy stocks should outperform more than any other rank.
Should You Consider Affirm Holdings?
Now that we understand what the ESP is and how beneficial it can be, let’s dive into a stock that currently fits the bill. Affirm Holdings (AFRM – Free Report) earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at -$0.04 a share, just 30 days from its upcoming earnings release on May 8, 2025.
By taking the percentage difference between the -$0.04 Most Accurate Estimate and the -$0.07 Zacks Consensus Estimate, Affirm Holdings has an Earnings ESP of +46.15%. Investors should also know that AFRM is one of a large group of stocks with positive ESPs. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.
AFRM is just one of a large group of Computer and Technology stocks with a positive ESP figure. Super Micro Computer (SMCI – Free Report) is another qualifying stock you may want to consider.
Super Micro Computer, which is readying to report earnings on April 29, 2025, sits at a Zacks Rank #2 (Buy) right now. It’s Most Accurate Estimate is currently $0.55 a share, and SMCI is 21 days out from its next earnings report.
For Super Micro Computer, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.52 is +6.8%.
AFRM and SMCI’s positive ESP figures tell us that both stocks have a good chance at beating analyst expectations in their next earnings report.
Find Stocks to Buy or Sell Before They’re Reported
Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they’re reported for profitable earnings season trading. Check it out here >>
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