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.
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 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.
Bringing together a positive earnings ESP alongside a Zacks Rank #3 (Hold) or better has helped stocks report a positive earnings surprise 70% of the time. Furthermore, by using these parameters, investors have seen 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 Lam Research?
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. Lam Research (LRCX) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.23 a share 29 days away from its upcoming earnings release on October 22, 2025.
By taking the percentage difference between the $1.23 Most Accurate Estimate and the $1.21 Zacks Consensus Estimate, Lam Research has an Earnings ESP of +1.43%. Investors should also know that LRCX is one of a large group 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.
LRCX is one of just a large database of Computer and Technology stocks with positive ESPs. Another solid-looking stock is ASML (ASML).
ASML is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on October 15, 2025. ASML's Most Accurate Estimate sits at $6.69 a share 22 days from its next earnings release.
For ASML, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $6.36 is +5.27%.
Because both stocks hold a positive Earnings ESP, LRCX and ASML 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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Lam Research Corporation (LRCX): Free Stock Analysis Report ASML Holding N.V. (ASML): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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