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 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.
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.
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 #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 AT&T?
The final step today is to look at a stock that meets our ESP qualifications. AT&T (T) earns a #3 (Hold) 30 days from its next quarterly earnings release on October 22, 2025, and its Most Accurate Estimate comes in at $0.57 a share.
T has an Earnings ESP figure of +5.23%, which, as explained above, is calculated by taking the percentage difference between the $0.57 Most Accurate Estimate and the Zacks Consensus Estimate of $0.54. AT&T 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.
T 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 Adobe Systems (ADBE) as well.
Adobe Systems, which is readying to report earnings on December 10, 2025, sits at a Zacks Rank #3 (Hold) right now. Its Most Accurate Estimate is currently $5.39 a share, and ADBE is 79 days out from its next earnings report.
The Zacks Consensus Estimate for Adobe Systems is $5.38, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.19%.
T and ADBE'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 >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
AT&T Inc. (T): Free Stock Analysis Report Adobe Inc. (ADBE): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
