Earnings are arguably the most important single number on a company’s quarterly financial report. Wall Street clearly dives into all of the other metrics and management’s input, but the EPS figure helps cut through all the noise.
Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.
Now that we know how important earnings and earnings surprises are, it’s time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
The Zacks Earnings ESP, Explained
The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.
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 Devon Energy?
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. Devon Energy (DVN – Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.24 a share, just 29 days from its upcoming earnings release on May 6, 2025.
Devon Energy’s Earnings ESP sits at +1.4%, which, as explained above, is calculated by taking the percentage difference between the $1.24 Most Accurate Estimate and the Zacks Consensus Estimate of $1.22. DVN is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.
DVN is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Archrock Inc. (AROC – Free Report) .
Slated to report earnings on April 29, 2025, Archrock Inc. holds a #1 (Strong Buy) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $0.43 a share 22 days from its next quarterly update.
For Archrock Inc. the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.39 is +10.26%.
DVN and AROC’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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