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.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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 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.
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 Estee Lauder?
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. Estee Lauder (EL) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.15 a share 26 days away from its upcoming earnings release on August 20, 2025.
By taking the percentage difference between the $0.15 Most Accurate Estimate and the $0.07 Zacks Consensus Estimate, Estee Lauder has an Earnings ESP of +97.06%. Investors should also know that EL 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.
EL is just one of a large group of Consumer Staples stocks with a positive ESP figure. Altria (MO) is another qualifying stock you may want to consider.
Altria, which is readying to report earnings on July 30, 2025, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $1.38 a share, and MO is five days out from its next earnings report.
Altria's Earnings ESP figure currently stands at +1.03% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.37.
Because both stocks hold a positive Earnings ESP, EL and MO could potentially post earnings beats in their next reports.
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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The Estee Lauder Companies Inc. (EL): Free Stock Analysis Report Altria Group, Inc. (MO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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