How to Find Strong Retail and Wholesale Stocks Slated for Positive Earnings Surprises

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.

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 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 Sprouts Farmers?

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. Sprouts Farmers (SFM) holds a #1 (Strong Buy) at the moment and its Most Accurate Estimate comes in at $1.54 a share 26 days away from its upcoming earnings release on April 30, 2025.

Sprouts Farmers' Earnings ESP sits at +0.11%, which, as explained above, is calculated by taking the percentage difference between the $1.54 Most Accurate Estimate and the Zacks Consensus Estimate of $1.53. SFM 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.

SFM is one of just a large database of Retail and Wholesale stocks with positive ESPs. Another solid-looking stock is Advance Auto Parts (AAP).

Advance Auto Parts is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on June 4, 2025. AAP's Most Accurate Estimate sits at -$0.72 a share 61 days from its next earnings release.

For Advance Auto Parts, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of -$0.77 is +6.4%.

SFM and AAP'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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This article originally published on Zacks Investment Research (zacks.com).

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