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.
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 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.
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 American Water Works?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. American Water Works (AWK) earns a #2 (Buy) right now and its Most Accurate Estimate sits at $1.50 a share, just one day from its upcoming earnings release on July 30, 2025.
By taking the percentage difference between the $1.50 Most Accurate Estimate and the $1.49 Zacks Consensus Estimate, American Water Works has an Earnings ESP of +0.67%. Investors should also know that AWK 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.
AWK is just one of a large group of Utilities stocks with a positive ESP figure. NRG Energy (NRG) is another qualifying stock you may want to consider.
NRG Energy, which is readying to report earnings on August 6, 2025, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $1.38 a share, and NRG is eight days out from its next earnings report.
The Zacks Consensus Estimate for NRG Energy is $1.18, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +16.95%.
AWK and NRG'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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American Water Works Company, Inc. (AWK): Free Stock Analysis Report NRG Energy, Inc. (NRG): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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