Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
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.
The ability to identify stocks that are likely to top quarterly earnings expectations can be profitable, but it's no simple task. Here at Zacks, our Earnings ESP filter helps make things easier.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete 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.
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 Macy's?
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. Macy's (M) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.20 a share 20 days away from its upcoming earnings release on August 20, 2025.
M has an Earnings ESP figure of +8.70%, which, as explained above, is calculated by taking the percentage difference between the $0.20 Most Accurate Estimate and the Zacks Consensus Estimate of $0.18. Macy's 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.
M is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at Burlington Stores (BURL) as well.
Slated to report earnings on September 4, 2025, Burlington Stores holds a #3 (Hold) ranking on the Zacks Rank, and its Most Accurate Estimate is $1.36 a share 35 days from its next quarterly update.
The Zacks Consensus Estimate for Burlington Stores is $1.25, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +8.55%.
M and BURL'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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Macy's, Inc. (M): Free Stock Analysis Report Burlington Stores, Inc. (BURL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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