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.
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.
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.
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 Progressive?
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. Progressive (PGR) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $4.59 a share 14 days away from its upcoming earnings release on April 11, 2025.
PGR has an Earnings ESP figure of +1.89%, which, as explained above, is calculated by taking the percentage difference between the $4.59 Most Accurate Estimate and the Zacks Consensus Estimate of $4.50. Progressive 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.
PGR is just one of a large group of Finance stocks with a positive ESP figure. Trustmark (TRMK) is another qualifying stock you may want to consider.
Slated to report earnings on April 22, 2025, Trustmark holds a #1 (Strong Buy) ranking on the Zacks Rank, and it's Most Accurate Estimate is $0.82 a share 25 days from its next quarterly update.
For Trustmark, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.82 is +0.31%.
PGR and TRMK's positive ESP metrics may signal that a positive earnings surprise for both stocks is on the horizon.
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 Progressive Corporation (PGR): Free Stock Analysis Report Trustmark Corporation (TRMK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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