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.
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.
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, 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.
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 Macy's?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. Macy's (M) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.20 a share, just 16 days from its upcoming earnings release on September 3, 2025.
M has an Earnings ESP figure of +7.53%, which, as explained above, is calculated by taking the percentage difference between the $0.20 Most Accurate Estimate and the Zacks Consensus Estimate of $0.19. 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 McDonald's (MCD) as well.
McDonald's, which is readying to report earnings on November 4, 2025, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $3.41 a share, and MCD is 78 days out from its next earnings report.
The Zacks Consensus Estimate for McDonald's is $3.40, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.42%.
Because both stocks hold a positive Earnings ESP, M and MCD 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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Macy's, Inc. (M): Free Stock Analysis Report McDonald's Corporation (MCD): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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