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.
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.
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.
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 AppLovin?
The final step today is to look at a stock that meets our ESP qualifications. AppLovin (APP) earns a #3 (Hold) eight days from its next quarterly earnings release on August 6, 2025, and its Most Accurate Estimate comes in at $2.07 a share.
AppLovin's Earnings ESP sits at +3.41%, which, as explained above, is calculated by taking the percentage difference between the $2.07 Most Accurate Estimate and the Zacks Consensus Estimate of $2. APP 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.
APP is just one of a large group of Business Services stocks with a positive ESP figure. Coherent (COHR) is another qualifying stock you may want to consider.
Coherent, which is readying to report earnings on August 21, 2025, sits at a Zacks Rank #2 (Buy) right now. Its Most Accurate Estimate is currently $0.95 a share, and COHR is 23 days out from its next earnings report.
The Zacks Consensus Estimate for Coherent is $0.92, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +2.47%.
Because both stocks hold a positive Earnings ESP, APP and COHR 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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AppLovin Corporation (APP): Free Stock Analysis Report Coherent Corp. (COHR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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