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.
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.
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 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.
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.
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 Nextracker?
The final step today is to look at a stock that meets our ESP qualifications. Nextracker (NXT – Free Report) earns a #3 (Hold) 19 days from its next quarterly earnings release on January 28, 2025, and its Most Accurate Estimate comes in at $0.62 a share.
NXT has an Earnings ESP figure of +5.26%, which, as explained above, is calculated by taking the percentage difference between the $0.62 Most Accurate Estimate and the Zacks Consensus Estimate of $0.58. Nextracker 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.
NXT is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Coterra Energy (CTRA – Free Report) as well.
Slated to report earnings on February 27, 2025, Coterra Energy holds a #1 (Strong Buy) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $0.44 a share 49 days from its next quarterly update.
The Zacks Consensus Estimate for Coterra Energy is $0.42, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +5.48%.
NXT and CTRA’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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