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.
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 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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 Atmos 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. Atmos Energy (ATO – Free Report) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $2.25 a share, just 28 days from its upcoming earnings release on February 4, 2025.
ATO has an Earnings ESP figure of +0.9%, which, as explained above, is calculated by taking the percentage difference between the $2.25 Most Accurate Estimate and the Zacks Consensus Estimate of $2.23. Atmos Energy 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.
ATO is just one of a large group of Utilities stocks with a positive ESP figure. Dominion Energy (D – Free Report) is another qualifying stock you may want to consider.
Slated to report earnings on February 27, 2025, Dominion Energy holds a #3 (Hold) ranking on the Zacks Rank, and it’s Most Accurate Estimate is $0.66 a share 51 days from its next quarterly update.
For Dominion Energy, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.58 is +13.31%.
ATO and D’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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