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.
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 Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more 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.
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.
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 Novavax?
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. Novavax (NVAX) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $1.13 a share, just 29 days from its upcoming earnings release on May 9, 2025.
By taking the percentage difference between the $1.13 Most Accurate Estimate and the $0.19 Zacks Consensus Estimate, Novavax has an Earnings ESP of +492.11%. Investors should also know that NVAX 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.
NVAX is part of a big group of Medical stocks that boast a positive ESP, and investors may want to take a look at United Therapeutics (UTHR) as well.
Slated to report earnings on May 7, 2025, United Therapeutics holds a #3 (Hold) ranking on the Zacks Rank, and it's Most Accurate Estimate is $6.48 a share 27 days from its next quarterly update.
For United Therapeutics, the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $6.29 is +3.07%.
NVAX and UTHR's 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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Novavax, Inc. (NVAX): Free Stock Analysis Report United Therapeutics Corporation (UTHR): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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