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.
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.
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.
Now that we understand the basic idea, let’s look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
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.
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 Novartis?
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. Novartis (NVS – Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.82 a share, just 21 days from its upcoming earnings release on January 31, 2025.
NVS has an Earnings ESP figure of +0.55%, which, as explained above, is calculated by taking the percentage difference between the $1.82 Most Accurate Estimate and the Zacks Consensus Estimate of $1.81. Novartis is one of a large database 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.
NVS is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is Boston Scientific (BSX – Free Report) .
Slated to report earnings on February 5, 2025, Boston Scientific holds a #2 (Buy) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $0.66 a share 26 days from its next quarterly update.
The Zacks Consensus Estimate for Boston Scientific is $0.65, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.24%.
NVS and BSX’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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