Two factors often determine stock prices in the long run: earnings and interest rates. Investors can’t control the latter, but they can focus on a company’s earnings results every quarter.
We know earnings results are vital, but how a company performs compared to bottom line expectations can be even more important when it comes to stock prices, especially in the near-term. This means that investors might want to take advantage of these earnings surprises.
Hunting for ‘earnings whispers’ or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn’t make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company’s report. The idea is relatively intuitive as a newer projection might be based on more complete information.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 28.3% annual returns on average, according to our 10 year backtest.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Chubb?
The last thing we will do today, now that we have a grasp on the ESP and how powerful of a tool it can be, is to quickly look at a qualifying stock. Chubb (CB – Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $5.74 a share 19 days away from its upcoming earnings release on January 28, 2025.
By taking the percentage difference between the $5.74 Most Accurate Estimate and the $5.48 Zacks Consensus Estimate, Chubb has an Earnings ESP of +4.63%. Investors should also know that CB 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.
CB is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Mr Cooper (COOP – Free Report) as well.
Mr Cooper is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on February 14, 2025. COOP’s Most Accurate Estimate sits at $2.59 a share 36 days from its next earnings release.
For Mr Cooper, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $2.58 is +0.29%.
Because both stocks hold a positive Earnings ESP, CB and COOP could potentially post earnings beats in their next reports.
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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