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.
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.
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 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.
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.
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 #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 Hewlett Packard Enterprise?
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. Hewlett Packard Enterprise (HPE) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $0.46 a share 29 days away from its upcoming earnings release on September 3, 2025.
Hewlett Packard Enterprise's Earnings ESP sits at +2.63%, which, as explained above, is calculated by taking the percentage difference between the $0.46 Most Accurate Estimate and the Zacks Consensus Estimate of $0.44. HPE 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.
HPE is part of a big group of Computer and Technology stocks that boast a positive ESP, and investors may want to take a look at Okta (OKTA) as well.
Okta is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on August 26, 2025. OKTA's Most Accurate Estimate sits at $0.86 a share 21 days from its next earnings release.
Okta's Earnings ESP figure currently stands at +2.29% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.84.
HPE and OKTA'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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Hewlett Packard Enterprise Company (HPE): Free Stock Analysis Report Okta, Inc. (OKTA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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