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.
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 #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 Solventum?
The final step today is to look at a stock that meets our ESP qualifications. Solventum (SOLV) earns a #1 (Strong Buy) nine days from its next quarterly earnings release on November 6, 2025, and its Most Accurate Estimate comes in at $1.44 a share.
Solventum's Earnings ESP sits at +0.88%, which, as explained above, is calculated by taking the percentage difference between the $1.44 Most Accurate Estimate and the Zacks Consensus Estimate of $1.43. 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 just one of a large group of Medical stocks with a positive ESP figure. McKesson (MCK) is another qualifying stock you may want to consider.
McKesson, which is readying to report earnings on November 5, 2025, sits at a Zacks Rank #1 (Strong Buy) right now. Its Most Accurate Estimate is currently $9.02 a share, and MCK is eight days out from its next earnings report.
The Zacks Consensus Estimate for McKesson is $8.92, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +1.16%.
Because both stocks hold a positive Earnings ESP, SOLV and MCK 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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Solventum Corporation (SOLV): Free Stock Analysis Report McKesson Corporation (MCK): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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