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.
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.
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 Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete 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.
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 #3 (Hold) ranking, which is most stocks covered at 60%, are expected to perform in-line with the broader market. But stocks that fall into the #2 (Buy) and #1 (Strong Buy) ranking, 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 Incyte?
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. Incyte (INCY) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.41 a share, just 19 days from its upcoming earnings release on July 29, 2025.
INCY has an Earnings ESP figure of +1.85%, which, as explained above, is calculated by taking the percentage difference between the $1.41 Most Accurate Estimate and the Zacks Consensus Estimate of $1.38. Incyte 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.
INCY is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at McKesson (MCK) as well.
Slated to report earnings on August 6, 2025, McKesson holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $8.28 a share 27 days from its next quarterly update.
The Zacks Consensus Estimate for McKesson is $8.25, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.33%.
INCY and MCK'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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Incyte Corporation (INCY): Free Stock Analysis Report McKesson Corporation (MCK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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