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.
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.
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.
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.
In fact, when we combined a Zacks Rank #3 (Hold) or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time. Perhaps most importantly, using these parameters has helped produce 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 Murphy USA?
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. Murphy USA (MUSA – Free Report) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $3.91 a share 30 days away from its upcoming earnings release on May 7, 2025.
Murphy USA’s Earnings ESP sits at +4.34%, which, as explained above, is calculated by taking the percentage difference between the $3.91 Most Accurate Estimate and the Zacks Consensus Estimate of $3.74. MUSA is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they’ve reported.
MUSA is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at Home Depot (HD – Free Report) as well.
Home Depot is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 20, 2025. HD’s Most Accurate Estimate sits at $3.59 a share 43 days from its next earnings release.
The Zacks Consensus Estimate for Home Depot is $3.59, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.12%.
MUSA and HD’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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