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.
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 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.
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.
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.
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 PENN Entertainment?
Now that we understand what the ESP is and how beneficial it can be, let's dive into a stock that currently fits the bill. PENN Entertainment (PENN) earns a #3 (Hold) right now and its Most Accurate Estimate sits at -$0.09 a share, just 13 days from its upcoming earnings release on November 6, 2025.
PENN Entertainment's Earnings ESP sits at +5.01%, which, as explained above, is calculated by taking the percentage difference between the -$0.09 Most Accurate Estimate and the Zacks Consensus Estimate of -$0.1. PENN 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.
PENN is one of just a large database of Consumer Discretionary stocks with positive ESPs. Another solid-looking stock is Marriott International (MAR).
Marriott International is a Zacks Rank #3 (Hold) stock, and is getting ready to report earnings on November 4, 2025. MAR's Most Accurate Estimate sits at $2.50 a share 11 days from its next earnings release.
The Zacks Consensus Estimate for Marriott International is $2.41, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +3.75%.
Because both stocks hold a positive Earnings ESP, PENN and MAR 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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PENN Entertainment, Inc. (PENN): Free Stock Analysis Report Marriott International, Inc. (MAR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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