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.
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.
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.
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.
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 Exxon Mobil?
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. Exxon Mobil (XOM) holds a #3 (Hold) at the moment and its Most Accurate Estimate comes in at $1.82 a share one day away from its upcoming earnings release on October 31, 2025.
By taking the percentage difference between the $1.82 Most Accurate Estimate and the $1.81 Zacks Consensus Estimate, Exxon Mobil has an Earnings ESP of +0.15%. Investors should also know that XOM is one of a large group 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.
XOM is part of a big group of Oils and Energy stocks that boast a positive ESP, and investors may want to take a look at Valero Energy (VLO) as well.
Valero Energy is a Zacks Rank #2 (Buy) stock, and is getting ready to report earnings on January 29, 2026. VLO's Most Accurate Estimate sits at $2.85 a share 91 days from its next earnings release.
The Zacks Consensus Estimate for Valero Energy is $2.56, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +11.17%.
Because both stocks hold a positive Earnings ESP, XOM and VLO 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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Exxon Mobil Corporation (XOM): Free Stock Analysis Report Valero Energy Corporation (VLO): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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