Wall Street watches a company's quarterly report closely to understand as much as possible about its recent performance and what to expect going forward. Of course, one figure often stands out among the rest: earnings.
The earnings figure itself is key, of course, but a beat or miss on the bottom line can sometimes be just as, if not more, important. Therefore, investors should consider paying close attention to these earnings surprises, as a big beat can help a stock climb and vice versa.
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.
Now that we understand the basic idea, let's look at how the Expected Surprise Prediction works. The ESP is calculated by comparing the Most Accurate Estimate to the Zacks Consensus Estimate, with the percentage difference between the two giving us the Zacks ESP figure.
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 Ollie's Bargain Outlet?
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. Ollie's Bargain Outlet (OLLI) holds a #2 (Buy) at the moment and its Most Accurate Estimate comes in at $0.76 a share 29 days away from its upcoming earnings release on December 9, 2025.
Ollie's Bargain Outlet's Earnings ESP sits at +6.54%, which, as explained above, is calculated by taking the percentage difference between the $0.76 Most Accurate Estimate and the Zacks Consensus Estimate of $0.71. OLLI 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.
OLLI is just one of a large group of Consumer Staples stocks with a positive ESP figure. Lamb Weston (LW) is another qualifying stock you may want to consider.
Lamb Weston is a Zacks Rank #1 (Strong Buy) stock, and is getting ready to report earnings on December 18, 2025. LW's Most Accurate Estimate sits at $0.69 a share 38 days from its next earnings release.
Lamb Weston's Earnings ESP figure currently stands at +1.88% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.68.
OLLI and LW'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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Ollie's Bargain Outlet Holdings, Inc. (OLLI): Free Stock Analysis Report Lamb Weston (LW): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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