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.
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 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.
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.
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 Carvana?
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. Carvana (CVNA – Free Report) earns a #1 (Strong Buy) right now and its Most Accurate Estimate sits at $0.27 a share, just 14 days from its upcoming earnings release on February 19, 2025.
CVNA has an Earnings ESP figure of +12.5%, which, as explained above, is calculated by taking the percentage difference between the $0.27 Most Accurate Estimate and the Zacks Consensus Estimate of $0.24. Carvana 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.
CVNA is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is American Eagle Outfitters (AEO – Free Report) .
American Eagle Outfitters, which is readying to report earnings on March 6, 2025, sits at a Zacks Rank #3 (Hold) right now. It’s Most Accurate Estimate is currently $0.50 a share, and AEO is 29 days out from its next earnings report.
For American Eagle Outfitters, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.50 is +0.19%.
CVNA and AEO’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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