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.
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.
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 Coterra 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. Coterra Energy (CTRA – Free Report) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.72 a share, just 30 days from its upcoming earnings release on May 1, 2025.
By taking the percentage difference between the $0.72 Most Accurate Estimate and the $0.71 Zacks Consensus Estimate, Coterra Energy has an Earnings ESP of +2.26%. Investors should also know that CTRA 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.
CTRA is one of just a large database of Oils and Energy stocks with positive ESPs. Another solid-looking stock is Clearway Energy (CWEN – Free Report) .
Slated to report earnings on May 8, 2025, Clearway Energy holds a #3 (Hold) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $0.02 a share 37 days from its next quarterly update.
The Zacks Consensus Estimate for Clearway Energy is -$0.30, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +105.92%.
CTRA and CWEN’s positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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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