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.
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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
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.
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.
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 #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 Carvana?
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. Carvana (CVNA) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $1.16 a share six days away from its upcoming earnings release on July 30, 2025.
CVNA has an Earnings ESP figure of +5.48%, which, as explained above, is calculated by taking the percentage difference between the $1.16 Most Accurate Estimate and the Zacks Consensus Estimate of $1.1. Carvana 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.
CVNA is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Boot Barn (BOOT).
Slated to report earnings on August 6, 2025, Boot Barn holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.54 a share 13 days from its next quarterly update.
The Zacks Consensus Estimate for Boot Barn is $1.53, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.65%.
CVNA and BOOT'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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Carvana Co. (CVNA): Free Stock Analysis Report Boot Barn Holdings, Inc. (BOOT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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