Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.
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 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.
The core of the ESP model is comparing the Most Accurate Estimate to the Zacks Consensus Estimate, where the resulting percentage difference between the two equals the Expected Surprise Prediction. The Zacks Rank is also factored into the ESP metric to better help find companies that appear poised to top their next bottom-line consensus estimate, which will hopefully help lift the stock price.
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.
Stocks with a ranking of #3 (Hold), or 60% of all stocks covered by the Zacks Rank, are expected to perform in-line with the broader market. Stocks with rankings of #2 (Buy) and #1 (Strong Buy), 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 Uber Technologies?
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. Uber Technologies (UBER) earns a #3 (Hold) right now and its Most Accurate Estimate sits at $0.52 a share, just 30 days from its upcoming earnings release on May 14, 2025.
UBER has an Earnings ESP figure of +3.04%, which, as explained above, is calculated by taking the percentage difference between the $0.52 Most Accurate Estimate and the Zacks Consensus Estimate of $0.50. Uber Technologies is one of a large database 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.
UBER is just one of a large group of Computer and Technology stocks with a positive ESP figure. Paycom Software (PAYC) is another qualifying stock you may want to consider.
Paycom Software, which is readying to report earnings on May 7, 2025, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $2.64 a share, and PAYC is 23 days out from its next earnings report.
The Zacks Consensus Estimate for Paycom Software is $2.62, and when you take the percentage difference between that number and its Most Accurate Estimate, you get the Earnings ESP figure of +0.84%.
UBER and PAYC'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 >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Uber Technologies, Inc. (UBER): Free Stock Analysis Report Paycom Software, Inc. (PAYC): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research
