Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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.
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.
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.
Most stocks, about 60%, fall into the #3 (Hold) category, and they are expected to perform in-line with the broader market. Stocks with a #2 (Buy) and #1 (Strong Buy) rating, or the top 15% and top 5% of stocks, respectively, should outperform the market, with Strong Buy stocks outperforming more than any other rank.
Should You Consider Apple?
The final step today is to look at a stock that meets our ESP qualifications. Apple (AAPL) earns a #3 (Hold) nine days from its next quarterly earnings release on July 31, 2025, and its Most Accurate Estimate comes in at $1.47 a share.
AAPL has an Earnings ESP figure of +3.52%, which, as explained above, is calculated by taking the percentage difference between the $1.47 Most Accurate Estimate and the Zacks Consensus Estimate of $1.42. Apple 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.
AAPL is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at ON Semiconductor Corp. (ON) as well.
Slated to report earnings on August 4, 2025, ON Semiconductor Corp. holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $0.63 a share 13 days from its next quarterly update.
The Zacks Consensus Estimate for ON Semiconductor Corp. is $0.54, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +16.85%.
AAPL and ON'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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Apple Inc. (AAPL): Free Stock Analysis Report ON Semiconductor Corporation (ON): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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