Two factors often determine stock prices in the long run: earnings and interest rates. Investors can't control the latter, but they can focus on a company's earnings results every quarter.
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 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.
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.
When we join a positive earnings ESP with a Zacks Rank #3 (Hold) or stronger, stocks posted a positive bottom-line surprise 70% of the time. Plus, this system saw investors produce roughly 28% 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 AllianceBernstein?
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. AllianceBernstein (AB) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $0.80 a share 20 days away from its upcoming earnings release on April 24, 2025.
AllianceBernstein's Earnings ESP sits at +0.84%, which, as explained above, is calculated by taking the percentage difference between the $0.80 Most Accurate Estimate and the Zacks Consensus Estimate of $0.79. AB 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.
AB is just one of a large group of Finance stocks with a positive ESP figure. Aflac (AFL) is another qualifying stock you may want to consider.
Aflac is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 7, 2025. AFL's Most Accurate Estimate sits at $1.74 a share 33 days from its next earnings release.
For Aflac, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $1.69 is +2.97%.
Because both stocks hold a positive Earnings ESP, AB and AFL 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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AllianceBernstein Holding L.P. (AB): Free Stock Analysis Report Aflac Incorporated (AFL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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