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.
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.
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.
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.
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.
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 Wingstop?
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. Wingstop (WING) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $0.86 a share 23 days away from its upcoming earnings release on April 30, 2025.
WING has an Earnings ESP figure of +1.25%, which, as explained above, is calculated by taking the percentage difference between the $0.86 Most Accurate Estimate and the Zacks Consensus Estimate of $0.84. Wingstop 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.
WING is part of a big group of Retail and Wholesale stocks that boast a positive ESP, and investors may want to take a look at Walgreens Boots Alliance (WBA) as well.
Walgreens Boots Alliance, which is readying to report earnings on April 10, 2025, sits at a Zacks Rank #2 (Buy) right now. It's Most Accurate Estimate is currently $0.58 a share, and WBA is three days out from its next earnings report.
For Walgreens Boots Alliance, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.53 is +9.39%.
Because both stocks hold a positive Earnings ESP, WING and WBA 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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Wingstop Inc. (WING): Free Stock Analysis Report Walgreens Boots Alliance, Inc. (WBA): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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