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.
Now that we know how important earnings and earnings surprises are, it’s time to show investors how to take advantage of these events to boost their returns by utilizing the Zacks Earnings ESP filter.
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.
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.
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 Allstate?
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. Allstate (ALL – Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $4.28 a share 29 days away from its upcoming earnings release on April 30, 2025.
By taking the percentage difference between the $4.28 Most Accurate Estimate and the $3.98 Zacks Consensus Estimate, Allstate has an Earnings ESP of +7.32%. Investors should also know that ALL 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.
ALL is part of a big group of Finance stocks that boast a positive ESP, and investors may want to take a look at Goldman Sachs (GS – Free Report) as well.
Goldman Sachs, which is readying to report earnings on April 21, 2025, sits at a Zacks Rank #3 (Hold) right now. It’s Most Accurate Estimate is currently $13.03 a share, and GS is 20 days out from its next earnings report.
For Goldman Sachs, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $12.74 is +2.25%.
Because both stocks hold a positive Earnings ESP, ALL and GS 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 >>
Financial Market Newsflash
No financial news published today. Check back later.
