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.
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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information.
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.
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 Talos Energy?
The final step today is to look at a stock that meets our ESP qualifications. Talos Energy (TALO) earns a #3 (Hold) 12 days from its next quarterly earnings release on August 6, 2025, and its Most Accurate Estimate comes in at -$0.18 a share.
TALO has an Earnings ESP figure of +34.58%, which, as explained above, is calculated by taking the percentage difference between the -$0.18 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.27. Talos 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.
TALO is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Equinor (EQNR) as well.
Equinor is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 23, 2025. EQNR's Most Accurate Estimate sits at $0.87 a share 90 days from its next earnings release.
The Zacks Consensus Estimate for Equinor is $0.82, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +6.75%.
TALO and EQNR'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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Talos Energy Inc. (TALO): Free Stock Analysis Report Equinor ASA (EQNR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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