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.
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 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.
With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure. The system also utilizes our core Zacks Rank to provide a stronger system for identifying stocks that might beat their next quarterly earnings estimate and possibly see the stock price climb.
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.
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 RH?
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. RH (RH) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $3.27 a share, just two days from its upcoming earnings release on September 11, 2025.
RH has an Earnings ESP figure of +2.51%, which, as explained above, is calculated by taking the percentage difference between the $3.27 Most Accurate Estimate and the Zacks Consensus Estimate of $3.19. RH 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.
RH is just one of a large group of Consumer Staples stocks with a positive ESP figure. Kimberly-Clark (KMB) is another qualifying stock you may want to consider.
Kimberly-Clark is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 28, 2025. KMB's Most Accurate Estimate sits at $1.67 a share 49 days from its next earnings release.
The Zacks Consensus Estimate for Kimberly-Clark is $1.58, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +5.92%.
Because both stocks hold a positive Earnings ESP, RH and KMB 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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RH (RH): Free Stock Analysis Report Kimberly-Clark Corporation (KMB): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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