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.
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.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
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 Fidelity National Information Services?
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. Fidelity National Information Services (FIS) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.37 a share 11 days away from its upcoming earnings release on August 5, 2025.
Fidelity National Information Services' Earnings ESP sits at +0.67%, which, as explained above, is calculated by taking the percentage difference between the $1.37 Most Accurate Estimate and the Zacks Consensus Estimate of $1.36. FIS is also part of a large group of stocks that boast a positive ESP. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.
FIS is part of a big group of Business Services stocks that boast a positive ESP, and investors may want to take a look at Gen Digital (GEN) as well.
Gen Digital, which is readying to report earnings on August 7, 2025, sits at a Zacks Rank #2 (Buy) right now. Its Most Accurate Estimate is currently $0.61 a share, and GEN is 13 days out from its next earnings report.
The Zacks Consensus Estimate for Gen Digital is $0.60, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.67%.
FIS and GEN'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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Fidelity National Information Services, Inc. (FIS): Free Stock Analysis Report Gen Digital Inc. (GEN): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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