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.
Hunting for 'earnings whispers' or companies poised to beat their quarterly earnings estimates is a somewhat common practice. But that doesn't make it easy. One way that has been proven to work is by using the Zacks Earnings ESP tool.
The Zacks Earnings ESP, Explained
The Zacks Earnings ESP is more formally known as the Expected Surprise Prediction, and it aims to grab the inside track on the latest analyst estimate revisions ahead of a company's report. The idea is relatively intuitive as a newer projection might be based on more complete information.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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 Solventum?
The final step today is to look at a stock that meets our ESP qualifications. Solventum (SOLV) earns a #3 (Hold) 30 days from its next quarterly earnings release on May 8, 2025, and its Most Accurate Estimate comes in at $1.24 a share.
Solventum's Earnings ESP sits at +4.42%, which, as explained above, is calculated by taking the percentage difference between the $1.24 Most Accurate Estimate and the Zacks Consensus Estimate of $1.19. SOLV 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.
SOLV is one of just a large database of Medical stocks with positive ESPs. Another solid-looking stock is CVS Health (CVS).
CVS Health is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on May 1, 2025. CVS' Most Accurate Estimate sits at $1.68 a share 23 days from its next earnings release.
The Zacks Consensus Estimate for CVS Health is $1.62, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.94%.
SOLV and CVS' 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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Solventum Corporation (SOLV): Free Stock Analysis Report CVS Health Corporation (CVS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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