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.
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.
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 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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 Tenet Healthcare?
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. Tenet Healthcare (THC – Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $3.17 a share 27 days away from its upcoming earnings release on April 29, 2025.
THC has an Earnings ESP figure of +1.68%, which, as explained above, is calculated by taking the percentage difference between the $3.17 Most Accurate Estimate and the Zacks Consensus Estimate of $3.12. Tenet Healthcare 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.
THC is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at Abbott (ABT – Free Report) as well.
Slated to report earnings on April 16, 2025, Abbott holds a #2 (Buy) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $1.07 a share 14 days from its next quarterly update.
The Zacks Consensus Estimate for Abbott is $1.07, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.21%.
Because both stocks hold a positive Earnings ESP, THC and ABT 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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