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.
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 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.
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.
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 Chipotle Mexican Grill?
The final step today is to look at a stock that meets our ESP qualifications. Chipotle Mexican Grill (CMG) earns a #3 (Hold) two days from its next quarterly earnings release on July 23, 2025, and its Most Accurate Estimate comes in at $0.33 a share.
By taking the percentage difference between the $0.33 Most Accurate Estimate and the $0.32 Zacks Consensus Estimate, Chipotle Mexican Grill has an Earnings ESP of +0.99%. Investors should also know that CMG 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.
CMG 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 TJX (TJX) as well.
Slated to report earnings on August 20, 2025, TJX holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.02 a share 30 days from its next quarterly update.
For TJX, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.01 is +1.42%.
CMG and TJX'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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Chipotle Mexican Grill, Inc. (CMG): Free Stock Analysis Report The TJX Companies, Inc. (TJX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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