Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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.
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 Walt Disney?
The final step today is to look at a stock that meets our ESP qualifications. Walt Disney (DIS) earns a #2 (Buy) seven days from its next quarterly earnings release on August 6, 2025, and its Most Accurate Estimate comes in at $1.49 a share.
By taking the percentage difference between the $1.49 Most Accurate Estimate and the $1.47 Zacks Consensus Estimate, Walt Disney has an Earnings ESP of +1.59%. Investors should also know that DIS 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.
DIS is just one of a large group of Consumer Discretionary stocks with a positive ESP figure. Crocs (CROX) is another qualifying stock you may want to consider.
Crocs is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 7, 2025. CROX's Most Accurate Estimate sits at $4.06 a share eight days from its next earnings release.
For Crocs, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $4.04 is +0.46%.
DIS and CROX'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 Walt Disney Company (DIS): Free Stock Analysis Report Crocs, Inc. (CROX): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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